Ever since the huge increase of the value of Bitcoin the entire financial world has been speculating over how big the bitcoin market will get. Older more conservative investors claim it’s just a fad, while younger investors tell you crypto is the currency of the future.
Will investing in it today make you rich?
While cryptocurrency won’t make most investors instantly wealthy, it can be a good addition to a long-term investment plan and has some great potential upside. However, cryptocurrency can also be an extremely risky investment.
In this article, we will take a look at the best way to invest in cryptocurrency in order to maximize your gains. Additionally, we will look at some potential mistakes that you can make while investing in crypto.
Understanding the Risk Associated with Investing in Cryptocurrency
It seems like just about every week you hear about a young investor who made a fortune off of some obscure cryptocurrency shooting up from a value of $0.01 to $0.50.
However, what you don’t hear about is the thousands of investors who invest in that same cryptocurrency when it skyrockets, just to see it fall back to $0.01.
Like any investment, cryptocurrency has its risks. However, unlike a stock, it’s sometimes hard to tell what you are buying and the legitimacy behind each cryptocurrency.
While it’s important to have some risk in your cryptocurrency and overall investment portfolio, you should only invest money in cryptocurrency that you are okay with losing.
Even Bitcoin, which is considered one of the safer cryptocurrencies to invest in, has extreme fluctuations. For example, in May 2021 the value of Bitcoin dropped almost 25% only to see a 33% increase in the month of August.
If you aren’t willing to ride out the highs and lows of cryptocurrency, then it may not be the best investment choice for you.
The Benefits of Investing in Cryptocurrency in the Long-Term
Relatively speaking cryptocurrency is a new type of investment. It wasn’t until 2016 that crypto really caught investors’ eye with the huge boom of Bitcoin. Then, in 2020 we saw people get rich off cryptos like Ethereum and Shiba Inu.
That being said, we really don’t know what the potential for cryptocurrency is at this point. Some claim it will only continue to rise, while others say it’s just a fad. However, for long-term investors, the allure of huge gains is too big to ignore.
If you are part of the younger generation and have time to let your money sit and grow without selling your investments, then cryptocurrency can be an excellent addition to your investment portfolio.
While cryptocurrency may be an extremely volatile investment over the course of the year or even over the course of five years, several currencies are trending upwards.
If you’re able to let your money sit in a cryptocurrency for 10 to 30 years, you could see some significant gains regardless of volatility.
Including Cryptocurrency in Your Overall Investment Portfolio
While cryptocurrency does have great potential, it should not be the only type of investment in your portfolio.
Allocating 5% to 15% of your overall investment portfolio in high-risk cryptocurrencies is a great way to potentially gain from cryptocurrency without it wreaking havoc on your long-term financial goals.
As cryptocurrency gains more credibility and stability, you can allocate more of your overall portfolio to the cryptocurrency market.
Including Stable Coins in Your Cryptocurrency Portfolio
Stable coins are an interesting addition to the cryptocurrency market. The purpose of a stable coin is to stay consistent with the value of a national currency.
The benefit of a stable coin is that it won’t lose value over time; however, it also won’t gain value either. In other words, it will keep pace with inflation, but other than that you aren’t making any returns on your investment.
If you are all-in on cryptocurrency and want to avoid traditional investments, then you should consider including a stable coin in your portfolio. This will help keep the value of your overall portfolio stable when riding waves of extreme volatility in with other cryptocurrencies.
Another strategy to use with a stable coin is having it replace a traditional saving account. Most savings accounts don’t earn enough interest to keep pace with inflation.
Therefore, you are actually losing money by keeping your money in savings. A stable coin is a fairly safe way to at least keep pace with inflation.
Some popular stable coins include:
The Risk of Short-Term Investing in Crypto
While a long-term investment in cryptocurrency could result in gains, short-term investing or day trading with cryptocurrency will almost certainly result in financial disaster.
There are over 9,000 different cryptocurrencies with more being mined every day. Not every cryptocurrency is going to succeed. In fact, most will probably fail.
The likelihood of timing your buy and sell perfectly for one of these cryptocurrencies is infinitesimal. It’s almost impossible to tell when a cryptocurrency is experiencing a short dip or going down for good.
While you may get lucky with one or two cryptocurrencies, the money lost trying to invest in cryptocurrencies that have ultimately failed will significantly cut into any potential gains you could make.
Do Your Research and Invest Wisely
The key to success in cryptocurrency is research. You should never blindly invest in a cryptocurrency. Some things to consider when choosing a cryptocurrency include:
- The Business Proposition – Is cryptocurrency solving a problem and what is the purpose of introducing it to the market?
- Total and Circulating Supply – Is there a market cap and how much of the total crypto is available?
- Price History – What are the price trends of the crypto? Did it just launch?
- Developer Activity – Are the developers actively managing the currency or did they just create the crypto and forget about it?
- Community Activity – Is there a large community surrounding the currency? Have notable businesses invested in it?
Once you’ve picked a currency that you like, buy it and hold it. Trust in your research and evaluate the success of the investment over the long term.
How to Get Rich off Cryptocurrency
The key to making money off cryptocurrency is time. Just like most investments, cryptocurrency takes time to appreciate value. As long as you take a long-term approach and do your research, there is a lot of potential for you to make significant money off investing in cryptocurrency.
