5 essential factors you should know when starting cryptocurrencies

5 essential factors you should know when starting cryptocurrencies

by Haps Staff
haps Korea Magazine

Interest in cryptocurrencies is continuously increasing, and lots of people want to dip into this industry. Younger investors got quite skeptical about the traditional financial service providers, especially after the 2008 financial crisis.

The demand for cryptos in the last decade is on the rise, and many companies and individual experts have revolutionized the industry. If you are curious about the names of crypto experts who have the most significant impact on the industry, you can find them at wallets.com/crypto-influencers.

Investing in digital assets has never been easier. Studies say that at least 40% of millennials want to invest in cryptocurrencies in the time to come. However, if you are one of them, you should consider a few essential factors before diving into cryptocurrency. We are going to cover the five most important ones.

Research

Take some time to research the best investment opportunities. If you have a team that can perform that research, it would be best. However, if you are investing in cryptocurrency on your own, making a personal due diligence checklist can be vital. When investigating a project as an investment opportunity, make sure it has a legitimate and experienced team in the cryptocurrency industry. Next, you may check if the project is a copycat of an existing offering, or it has identified an area of opportunity. Also, if a project has beta or proof of concept, it can indicate there would be a better chance of getting investment returns.

Market cap

There are tens of thousands of cryptocurrencies listed across numerous exchanges.  Usually, only the largest cryptocurrencies are covered by market capitalization, and new and seasoned investors are most familiar with these tokens. But let’s first see what is market capitalization, or market cap? This metric reflects the size of a project, and it is calculated by taking the total number of circulating supply and multiplying it by the asset’s price.

It can also be a good indicator of the level of investment risk, and that’s why it is essential to check the digital asset’s market cap. A high market cap coins with a sizeable circulating supply are less vulnerable to wild volatility and manipulation in comparison to those with smaller market cap and lower circulating quantity.

Trading volume

If you want to make a purchase, you should check the digital asset’s trading volume first. That shouldn’t be an issue for the most popular tokens. However,  if you are about to investigate obscure coins with a smaller market cap, you should know how many tokens are sold and bought daily. It will be easier for you to trade digital assets with higher trading volume. On the other hand, you could struggle to buy a digital asset with lower trading volume, and it can also hint the lack of liquidity. Those cryptocurrencies with extremely low trading volume can be considered very risky, and you should avoid them when possible.

Trading strategies

Although having a trading strategy is not crucial, it can significantly help you avoid emotion-led trading. It would help if you built a game plan for the buying and selling price of an asset. As an investor, you can get protected by a stop-loss order by selling an asset at a rate slightly below the one you paid for buying an asset. Since cryptocurrencies are highly volatile, meaning that the price can go up and down in a short timeframe, a stop-loss strategy can protect you against significant losses.

The most experienced crypto traders recommend a stop-loss to be placed at 2% – 4% of the purchase rate. It is always better to take a small loss than holding an asset that will continuously lose its value, which was already the case back in 2017. A lot of traders learned this lesson the hard way.

Safe storage

When you get your crypto, you must store it safely. Keeping your crypto at an exchange might be risky and less secure, and you should avoid this approach. On the other hand, lots of investors tend to store their assets in hardware of software wallets. If you pick a hardware wallet, you get the private key to your asset, and it can be accessed only by you. In case you prefer software wallets, the choice is extensive, and you can access your cryptocurrencies via an app at your desktop or mobile device. Both types of wallets are a better option than keeping your assets at custodian wallets and exchanges where they are more secure.

If you decide to invest in cryptocurrency, it doesn’t mean it is necessarily risky. You can reduce it by having a good plan and doing research like every responsible trader.

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