14 Important Rules To Follow When Investing In Crypto (And Other Assets)

Lost money to a crypto or trading scam? Read this first:

If your losses exceed £3,000 (in the UK) or $10,000 worldwide The Crypto Adviser can offer advice on recovering your funds. 

>> GET IN TOUCH

We all want to make our money work harder and investing in crypto is one way of potentially profiting from this new asset class.

But it’s not simply a case of throwing your money at the next meme coin in the hope you’ll become an overnight millionaire.

Successful crypto investing – and any investing – needs to be approached with caution and a thorough understanding of how the market works.

These top financial tips will help you navigate this new world of investing in digital assets.

1. Don’t invest in assets you don’t understand

This rule should be followed no matter what asset you’re investing in – whether it’s crypto or a traditional financial product. Investing in assets you don’t understand opens you up to potentially losing your cash, and this is particularly true in the crypto sector where there are many new and complex products and tokens, together with a multitude of scams and rug pulls.

2. Do your own research and due diligence

If you understand cryptocurrency and have spotted a token you’d like to invest in, make sure you research it thoroughly. It’s crucial that you understand its technology and use case and can verify the team behind it. It’s also useful to view it in the context of market trends and cycles, and to study how much community support exists for the coin.

3. Practise the principle of Dollar/Pound cost averaging

One easy to implement and effective financial hacks when investing in crypto and other financial products is dollar/pound cost averaging. This is where you invest small amounts regularly to smooth out any peaks and troughs in the price of an asset. Buying small amounts of Bitcoin, for example, at the same time each week or month will mean that you’ll buy when the price is both higher and lower. Trying to time the market is very difficult and can lead to significant losses.

4. Take advantage of compound interest

Whether it’s money in a savings account or crypto deposited on an interest earning platform, compound interest will help your assets grow more quickly. Some cryptocurrency savings platforms compound your earnings daily meaning you’ll earn interest on your interest every 24 hours.

5. Don’t believe social media hype and crypto shills

Social media is saturated with crypto commentators claiming to have a crystal ball that reveals which coins will explode next and ‘go to the moon’. A lot of these coins are ‘Pump-and-Dump’ schemes designed to artificially inflate the price of a crypto before the original holders dump their coins at a profit. If you want to grow your crypto wealth and avoid losing all your cash, it’s best to ignore 99% of Bitcoin ‘gurus’ and follow more measured and sensible sources of crypto news and advice. Beware of FOMO (Fear of Missing Out) and FUD (Fear, Uncertainty and Doubt) when making your investment decisions.

6. Keep your emotions in check

As we’ve seen, FOMO can drive poor investment decisions so it’s important to keep your emotions in check and ignore speculative rumours and hype. Stick to solid research and data-drive analysis.

7. Don’t invest in anything a new ‘friend’ recommends

If you only follow one rule on this list then make it this one – never invest in anything a new ‘friend’ who you’ve met online recommends. This is how the majority of pig butchering scams start and will lead to you losing any cash that you invest. Often the person will claim the scheme offers incredible returns that are risk free. If you find yourself in this situation, block this person immediately. Only use exchanges and platforms that you can research thoroughly and are trusted.

8. Diversify your portfolio

The old adage ‘don’t put all your eggs in one basket’ applies to crypto just as much as it does to traditional investing. Diversify your portfolio across a range of well-researched digital assets to spread risk and increase the potential rewards you’ll receive.

9. Only invest what you can afford to lose

Cryptocurrency markets can be extremely volatile and unpredictable. Blockchain is a relatively new technology and new cryptos spring up all the time which may or may not be the next big thing. Therefore, it’s important that you only invest money in cryptocurrency that you can afford to lose without causing you financial hardship if the markets tank.

10. Be cautious with margin trading and leverage

It’s easy to be attracted to the idea of larger profits using margin trading and leverage, but the loses will also be greater if the market don’t go your way. Only use these tools if you fully understand the risks involved and how you can potentially lose your funds.

11. Set clear goals and limits

If you’re planning to trade cryptocurrency on a regular basis it’s vital that you have a carefully laid out plan and a set budget for your investing. Establish both profit-taking and stop-loss limits and stick to your strategy to avoid making impulsive decisions based on emotions.

12. Always practise good crypto security

Holding crypto on an exchange can be risky as several high-profile hacks and platform collapses have shown. Equally, crypto self-custody can present its own issues as you effectively become your own bank with no-one to turn to if things go wrong. Always practise good crypto security, which includes keeping your private keys/mnemonic seed phrase safe and away from prying eyes.

13. Be patient and long-term oriented

As I’ve said, cryptocurrency markets can be volatile and the individual price of coins can experience significant fluctuations in the short term. A solid investing strategy is to be patient and maintain a long-term approach when it comes to investing in crypto. Day trading requires a lot of work and experience and is not for the faint hearted.

14. Stay informed and understand the importance of education

There’s a wealth of information about the world of cryptocurrency investing online – some of it good, some of it bad. Find sensible and reliable sources that you trust and educate yourself as much as possible before taking the plunge. Staying informed will lead to well-informed investing decisions that will hopefully pay off.

We can help!

If you need assistance starting your crypto journey, we can get you up-and-running in no time! Send us an email to get started.