May 24, 2024

How to choose a cryptocurrency for investment and not make a mistake

Not a single person left who hasn’t heard of cryptocurrency. In the short time electronic money has existed, many investors have managed to earn good money. Investors could buy and sell BTC for profit. But as everyone knows, cryptocurrencies are not stable. Unfortunately, there are failures in crypto of the world and the cryptocurrency market. But investing in cryptocurrency is still profitable.

On the contrary, many traders do a lot of work to understand the reasons for price changes. This knowledge helps to analyze and choose a cryptocurrency for investment correctly. We will consider how to choose digital money for investment in the article below.  

The concept of cryptocurrency

Cryptocurrencies are digital currencies that can be traded like any traditional paper currency. However, financial institutions do not control currencies such as Bitcoin, and transactions utilize cryptographic features. Most cryptocurrencies use blockchain technology to achieve immutability, transparency, and decentralization. One of the few exceptions is IOTA, a project that relies on the so-called Tangle. 

Substantial price increases have taken cryptocurrencies out of a small niche. Bitcoin still has the largest market capitalization. You can see the dynamics of Bitcoin changes at WhiteBIT, where information is updated daily. Now that the mother of all digital currencies is on everyone’s radar, more and more investors are looking to buy Bitcoin, and some even believe that cryptocurrencies should be part of every portfolio.

While Bitcoin is the best-known digital currency, it is not the only one. Different digital currencies also mean different use cases. Therefore, many market observers believe it also makes sense to diversify the cryptocurrency sector. For example, while Bitcoin is considered digital gold, a.k.a. a savings vehicle, IOTA has set out to become a currency for the Internet of Things.

Guidelines for working with cryptocurrency

Opinions on cryptocurrency investment vary, with some enthusiastic about the future and price potential, while others warn of the risks associated with the young asset class. Potential risks include the possibility that a bet may not work out. As with any investment, good past performance does not guarantee future price appreciation.

Study, research, and get information, and don’t get carried away by third-party opinions but form your own opinion. If you don’t have enough time to deal with this issue, you can make your life easier by suggesting a trader using automated software such as Bitcoin code. Suppose you know where you want to put your money. In that case, you are also aware of the risks involved and, therefore, only invest unnecessary money that you can afford to lose without affecting your financial situation.

Are cryptocurrencies safe?

Crypto data is not centrally managed or issued but is constantly verified by all participants in the crypto system (blocks of the blockchain). This branched and interdependent cryptography, the encryption of information about the system, makes the data virtually invulnerable. They can only be changed in one place, subsequently, or with consultation. Thus, hackers would have to simultaneously and concurrently manipulate all parts of the blockchain network to do something. And: Government agencies don’t have access either. In principle, this makes cryptocurrencies very secure.

On the other hand, there is criticism that money laundering and terrorist financing are disclosed for the reasons mentioned. It is also discussed that the value of cryptocurrencies is artificially inflated. This could lead to a bubble that eventually bursts. This, in turn, is contrary to what many investors are hoping for. Many are looking for alternative investment opportunities in the global market, fearing devaluation of currencies where “money-hungry bankers” are not in control.

Mistakes of Investing in Cryptocurrency

Recently, there has been a veritable flood of news about cryptocurrencies. This has led to an increase in investment in this type of asset, in some cases by people with little knowledge of the subject. Common mistakes in crypto projects are usually made that can cause financial damage. Therefore, it is worth paying attention to what mistakes are most often made when investing in these digital tokens and what are the best solutions.

Get caught up in the emotion

As in all investments, the emotional factor plays a fundamental role and is one of the major mistakes made by novices. Buying and selling based on headlines or sensationalized reports that often contain misinformation or are untrue is not uncommon. Emotions often play a role when new investors invest in cryptocurrency, and it is just as difficult for them to accept losses as it is to liquidate gains. Therefore, emotional attachment to investments that aim to make a profit significantly harms good decision-making.

How can the problem be corrected? Emotional factors can be corrected by setting both sell and buy targets, liquidating a certain percentage of investments, or investing in another asset.

Wrong choice of investment platform

Some crypto users tend to avoid KYC verification that is necessary on some platforms. What is KYC crypto verification? It is a way for a cryptocurrency platform to verify its users and ensure the transparency and clarity of its operations. Another aspect to consider is that some platforms claim they do not charge a commission for buying and selling cryptocurrency. If so, where do they get their profits from to keep their business afloat?

Of course, the price at which you buy cryptocurrency will be much higher than the market average, and if you sell it, the price will be much lower. Try to look for sites that are as transparent as possible in this sense. Therefore, it is essential to be careful when you find too attractive offers.

Investing in cryptocurrencies – how does it work?

With this knowledge, we can now move on to the trading venues: various crypto exchanges and DEX (decentralized exchanges) offer trading or direct purchase of cryptocurrency. One of the most famous is WhiteBIT. Coins and tokens can be bought or sold on such platforms, either directly or through a buying and selling agreement with other individuals. The price of a token or coin is based on the principle of supply and demand. A little tip: if you want to identify promising crypto projects, you should also put your cryptocurrencies in your own wallet after purchase instead of leaving them with a broker.

Or you have decided to speculate on the exchange rate of one or more cryptocurrencies. The latter is often done with CFDs, which stands for Contracts for Difference. With highly speculative derivatives, which are usually also offered by brokers, you can invest in the value development of the cryptocurrency market with a small capital, i.e., also speculate that the cryptocurrency may go down soon (even more).

Those looking for something longer-term can invest in successful crypto projects. The advantage: in this case, the income is not subject to income tax but to a lower capital gains tax.

Here are a few essential tips for crypto project success factors:

  • As in all forms of investment, it is recommended to diversify several different investments to minimize the risk of total loss.
  • It is also essential to compare different providers. Because transaction fees, for example, can vary greatly – depending on the time of day and the number of ongoing transactions, among other things.
  • Due to the high volatility of cryptocurrencies, i.e., strong price fluctuations, it is advisable to approach the matter as unemotional as possible: buy outside the frenzy and test different options with small amounts.
  • When transferring cryptocurrency from the broker to your wallet or back, use the correct address. A simple typo and your coins or tokens will disappear, never to be seen again.
  • Cryptocurrencies held for at least a year are tax-free – before that, profits are subject to income tax.
  • Also interesting: countless crypto projects are running on websites or mobile apps designed to promote the acceptance and distribution of cryptocurrencies.

Although blockchain technology makes transactions extraordinarily secure, like all currencies and means of payment, cryptocurrencies are based on nothing more than a system of trust. 20 euro bill is only worth 20 euros because most people accept it that way. After the big hype and colossal price increase, most cryptocurrencies fell again. And just because of these high fluctuations, many economists consider Bitcoin a crazy idea. There is hardly a reliable means of payment in a currency that can be worth ten percent more today than it was yesterday. The (main) reason for the fluctuations: the already mentioned cryptocurrency speculation and a certain casino mentality that has spread when it comes to cryptocurrencies.

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