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5 tips for first-time crypto investors

It’s never too late to get in, but novice buyers should take some basic precautions.
Even a small amount of exposure will prompt you to start tracking the performance of your investment – and there’s no better way to develop your knowledge. Image: Shutterstock

Most people start their crypto journey by opening an account with an exchange such as Luno, VALR or AltCoinTrader, and purchase a little bit of Bitcoin (BTC) and maybe some Ethereum cryptocurrency that goes by the code ETH.

Understand that these are volatile investments and you should only invest money you are prepared to lose.

That said, millions of people around the world are prepared to accept the risks and have started to dabble in cryptos.

Here are a few pointers to help first-time buyers on their crypto journeys.

1. Take the first step 

The old Chinese proverb ‘the journey of a thousand miles starts with one step’ rings true for investing in cryptocurrency. Make that first investment, even if it’s just R200. Giving yourself some, even very small, exposure to the market will result in you starting to track the performance of the investment. There is no better way to develop your knowledge and understanding of an investment than to be in the market. Of course, no one is going to become an expert overnight (and be sceptical of those who claim that they are). It requires time and continual learning, something you’ll only start once you have made that first investment.

2. Don’t wait

Cryptocurrencies are far more volatile than standard investments. This is part of their appeal – as volatility can contribute to higher returns for an investment portfolio – but it does mean that timing an investment is tricky, if not impossible. This is true of most markets. If you are worried that as you enter the market, the market will crash, then decide on how much you want to invest in total and then invest 10% of that amount every week, or every month, until your allocation is invested.

This strategy, known as dollar-cost averaging, will certainly lower your risk if the market drops and give you more of a handle on the day-to-day intricacies of trading.

3. Don’t put all your eggs in one basket

Due to their volatility, cryptocurrencies fall within the ‘riskier investment’ category of an investor’s portfolio. As a result, investors should understand that the risk profile is high, so allocation should be limited to a few percent. However, high risk can translate into high reward (as with bitcoin over the years). By diversifying your cryptocurrency portfolio, you are in a position to benefit from the overall increased adoption of this new technology, without betting on a single cryptocurrency. Do your research and see which coins you find have a compelling investment case. Cryptocurrency doesn’t end with bitcoin.

4. Long-term hold

If you track all the graphs over the past five years, you will see that investors who have held their cryptocurrency investment for longer than, say five years, have all generated good, long-term returns. This indicates that you should resist the urge to impulsively sell what you have should the market drop. Holding your investment over a long period of time is also a great remedy to the volatility. While the major cryptocurrencies may be up or down 5% to 20% on a given day, in the long run, the trend has been upwards.

5. Security 

With the rise of online banking and banking apps, most people are far more particular about online security than they were a few years ago. When it comes to cryptocurrency trading it is even more important. Make sure the trading apps and digital wallets you make use of have two- or even three-factor authentication and do not duplicate passwords you’ve used before. And if you do work through exchanges or fund managers, confirm through various sources that they are reputable.

Read:
Five steps to protect your crypto and other assets from hackers
Are your cryptocurrencies stored safely?
Why leaving your bitcoin on an exchange is like leaving cash under your mattress

Gaurav Nair is co-founder of alternative investments firm Jaltech.

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Surely that headline “5 tips for first-time crypto investors” should be “speculators”?

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