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  • Writer's pictureKerati Piyarat

6 Rules of Investing in Digital Assets

Investing in the cryptocurrency market presents significant challenges. Unlike traditional markets, it operates in a manner that defies conventional rules. The market's high volatility and technical complexity can easily overwhelm investors. Despite these challenges, it is not surprising that many well-known investors and companies are allocating a larger portion of their portfolios to cryptocurrencies. Over time, the crypto market has proven to be appealing to numerous individuals.

Now, the question arises: how does one invest in cryptocurrencies while minimizing risks? Although the market's volatility can be discouraging, there are fundamental guidelines you can follow to maximize your capital.

1. Never Invest More than You Can Afford to Lose

The cardinal rule emphasized by successful and prudent investors is to invest only an amount that you can afford to lose. This rule applies to all investment markets, but it holds even more significance in the realm of cryptocurrencies, where rapid drops in value by double digits can occur within a matter of hours. Within the current investment landscape, there are individuals who exhibit reckless behavior, jeopardizing their life savings by placing them on a handful of stocks—a perilous path to financial ruin.

The cryptocurrency market has experienced unparalleled value growth alongside substantial declines. As a nascent market, it lacks regulatory oversight and is characterized by early-stage technical barriers. Consequently, unfortunate circumstances such as hacks, fraudulent activities, and seemingly impulsive waves of sell orders may arise.

Therefore, investors should allocate a small portion of their capital—emphasizing once again, an amount they can afford to lose—and allocate it to a select few cryptocurrencies, following a well-thought-out budgetary approach.

2. Use Dollar-Cost Averaging (DCA)

The concept of dollar-cost averaging (DCA) holds significant relevance in the realm of cryptocurrency. DCA serves as a strategy to mitigate the impact of volatility, a prominent characteristic of the crypto market. By consistently investing small amounts over time, you can offset potential losses and make more efficient use of your capital.

Employing this method may result in slightly higher network fees. However, any gains you achieve should outweigh this factor, rendering it insignificant. You have the flexibility to implement DCA on a weekly or monthly basis, as per your preference. Additionally, if you hold a positive outlook on the market's trajectory, you may choose to allocate extra capital during periods when the market appears to be at a low point.

However, by using to be your crypto savings wallet, the burden of network fees is gone. All you need to do is collect your interest income daily, no gas fee needed.

3. Research in Detail, Stick to the Fundamentals

While it may not follow the straightforward path of investing in publicly traded companies, research still plays a significant role in the investment process. You should check whether the project and the cryptocurrency in question possess a valuable and distinctive use case, evaluating the technical aspects of the project, scrutinizing the management team, and gauging the potential for disruption within the industry or space in which it operates.

Regardless of the specific criteria, it is imperative to prioritize the fundamentals. Does the project boast a transparent and trustworthy team? Do the financial aspects, such as expenditure and allocation towards investors, align logically? Does the technology exhibit genuine potential? By focusing on these foundational aspects, you can make more informed investment decisions.

4. Stick to the Major Assets

Undoubtedly, the intricate and innovative nature of researching cryptocurrencies may appear daunting to many individuals. For those who find it overwhelming, it may be advisable to focus on major assets that have withstood the test of time. Bitcoin and Ethereum serve as prime examples of such assets, having endured numerous challenging bear markets.

While there are several other major assets with substantial market capitalizations, predicting their potential for long-term survival becomes increasingly challenging. This caveat applies to Bitcoin and Ethereum as well. However, the prevailing consensus suggests that these two cryptocurrencies have already established their credibility and merit serious consideration for investment purposes.

5. Use Safe Storage

Apart from the investment aspect itself, one critical requirement when engaging in the cryptocurrency market is the practice of secure storage. It is common to hear stories of investors losing access to their exchange accounts or, in the worst-case scenario, losing their funds entirely due to hacks or security breaches. Safeguarding your crypto holdings is of utmost importance, and the responsibility lies with you.

In this regard, serious investors should consider utilizing a hardware wallet. These wallets offer additional security features to safeguard your funds against theft. Remember that investors should not hold significant amounts of cryptocurrency on exchanges or software wallets, as they may pose higher risks. By prioritizing secure storage solutions such as hardware wallets, investors can significantly mitigate the potential loss or compromise of their crypto assets.

6. Employ Common Sense (Diversify your portfolio)

In the realm of crypto investing, exercising common sense is paramount. While it may be enticing to get caught up in the hype surrounding a brand-new project, more often than not, such enthusiasm leads to substantial losses. Similarly, it is tempting to invest in meme tokens that experience significant price surges due to online rallying, as seen with Dogecoin. However, this approach carries inherent risks, and caution is advised.

Similar to the stock market, diversification is key. Numerous projects are actively addressing significant problems and use cases, holding the potential to cause substantial disruption. While success is not guaranteed, one can adopt a strategy akin to diversifying across various sectors in the stock market, allocating capital across these projects.

By exercising common sense, avoiding impulsive decisions driven by hype, and diversifying investments, investors can make more informed choices in the volatile crypto market.

The Bottom Line

In conclusion, venturing into the crypto market may initially appear intimidating due to its unconventional nature. Therefore. it is important to approach crypto investing with caution, rather than adopting an overly enthusiastic or reckless mindset promoted by some enthusiasts. By applying the basic principles of investing, exercising common sense, and maintaining a level-headed approach, you may discover that the crypto market is not as overwhelming as it may initially seem.

By following these guidelines, you can approach crypto investing with a more informed perspective, reducing risks and maximizing your chances of success in this dynamic market. However, if this is still too hard for you, consider trying Nativ for once, and your journey in crypto will be much easier than ever.

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