When, Why, How, and How NOT to Begin Investing in Cryptocurrencies

I, Viktor Kochetov, CEO at Kyrrex, a digital wallet and professional cryptocurrency trading platform, reflect on crypto investment, popular delusions and sheds light on wise investing practice.

It appears that the hype around crypto is really hard to tame: there are still investors who pour their money into cryptocurrency driven by high hopes and dreams. However, the hysteria has gradually settled down, and the real value behind crypto is starting to be seen. Large investment groups are increasingly considering crypto assets worth adding to their portfolios.

Let’s hear what statistics have to say. According to research powered by Fidelity, approximately 50% of institutional investors recognize the high potential of digital assets and find them quite appealing. 22% of 441 surveyed investment institutions are already engaged in the market.

Source: Fidelity

The same study reveals optimistic projections on the crypto investing landscape. The number of institutional investors is expected to rise within the next five-year period. In view of this, regulatory conversations are gaining momentum. There are two major concerns when it comes to selecting cryptocurrency custodian — safety and security (and we know these considerations do not prevail without a reason).

Investors are scrupulously doing their homework and analyzing the possible impact of tech on their activity and financial markets as a whole.

Interest in crypto has matured. This means, more people realize the high stakes of crypto trading, its risks and rewards. Just imagine: a multi-billion dollar industry has risen out of nothingness in a decade.

There is evidence that crypto assets will be alive and kicking primarily with the support of traditional finance. The development of investment thesis here must be grounded on increased education and deep knowledge. If you still think crypto investment is a no-brainer, and profitability is random, then this material will adapt you to the realities.

Crypto investing is not for everyone

Cryptocurrency is definitely a new paradigm, changing the habitual order of things. Believe it or not, there are many cases when investing in crypto is not recommended or even out of the question. Counting on cryptocurrency as the lifeline that will save you from the money pit is the first delusion.

Mind the volatility: this thought must be cemented in your consciousness. In case you have loans or high-interest debts or you plan to borrow money to make an investment — stop where you are.

Investing in cryptocurrency to follow the trend is another thing that confuses many people. It is not just about the technology itself that changes industries one by one. We have to perceive crypto as a network, economic and social features of which stimulate disruption. A technology, per se, is worth nothing.

Many of those crypto innovations will fall off, so chasing the fad is not the strategy to follow.

Basically, what we are doing here is debunking the most common myths. You don’t invest if you are running after a quick buck. You don’t invest in cryptocurrency because someone assured you things are much easier as compared to other assets.

No it’s not. Despite growing interest rates, cryptocurrency should not be regarded as equivalent. If you look around you won’t find a lot of shopping malls accepting bitcoin, will you?

In other words, crypto investing implies some solid reasoning that excludes all the above-mentioned cases.

Why invest?

Investment in the crypto industry, in a broad sense, is a new formation stage of an alternative financial system. If we do not take into account the speculative actions in the crypto market (and we are talking about the development of the blockchain technology and everything related to it), then the future lies with crypto.

Prior to investing, think over the prospects of the asset in which you want to invest and which you want to trade. Prospects should be measured by the project's degree of usefulness for the real economy and society as a whole.

If the asset is purely speculative, then your investment will be no better than gambling.

But, in case a crypto asset represents a real project that carries a payload, and trade and investment is just a by-product, then you should pay attention to it.

Common mistakes you should avoid

If you have a hammer you can build a house or smash your fingers — positive outcomes depend on proper use. You cannot approach the crypto world without knowing its basics, how to get started, or having little understanding of the technological framework behind it.

Of course, taking action takes a lot of courage, and experience is made up of many mistakes and wrong turns, that is how it goes.

There is no need to take the plunge: start with a small investment. The same pertains to overtrading. Some newcomers are performing around 18-20 trades in 24 hours.

The decision-making skill relies on the ability to be selective. Dozens of great trading opportunities per one day is too good to be true.

Diversification. You have to find the perfect balance as there is a chance of overdiversifying or underdiversifying your portfolio. An experienced investor knows that investment in several types of assets saves the day.

But at the same time it doesn’t mean you invest in 200 cryptocurrencies wildly — you will find it hard to even monitor them and keep your finger on the pulse.

Source: IHODL

A trader doesn’t have to be right all the time. The market evolves and transforms like a living organism, so there’s no need to cling to an asset you no longer believe in.

It is essential to have a certain plan to stick to. Do not let emotions overwhelm you: if your plan contains 15% cost-cutting — do it.

Probably the most serious mistake of the present day is overlooking security and underestimating the talent of scammers. A lack of prudence, insufficient knowledge about current security trends and measures, are sure to walk one directly into the hands of fraudsters.

A huge percentage of attacks are attributed to an inadequate attitude towards sensitive information.

The human factor will always be an attractive target for hackers as long as we let it happen.

Doing it like a pro

The alchemical formula that turns any substance into bitcoin does not yet exist. However, in order to choose the right moment to invest in cryptocurrency, you should heed the market and stay focused.

Studying price fluctuations of specific digital assets, the identification of patterns and logic of asset value movement, can help the investor to enter the transaction at the right time.

Plus, the news noise can give impetus to the movement of a particular asset. It is worth learning to properly filter information from talking heads. You need to learn to separate the wheat from the chaff in terms of information on cryptocurrency, and it takes time.

The trick is in entering transactions in the very beginning of a trend other than trying to catch a departing train.

The complexity of investing in any assets always depends on their predictability. The cryptocurrency market is very difficult to predict because it has little liquidity and, as a result, is very volatile.

The cycle of the asset price movement is subject to the principle of a trite financial pyramid: the first ones are cashing (those who create newsbreaks to imitate the hype on the market), and the last ones pay the high price. And the task of the investor is to be among the first ones.

In a nutshell, investing in crypto starts with being extremely true to yourself.

Ask yourself a question: Why am I doing this?

If you don’t have any clear answer coming from the inside (or your answer was mentioned above) — you are probably not ready yet. I am far from saying, that financial profit or getting rich with crypto is a bad idea, no it's not.

The point is, the market has no room for rush or hysteria. Whatever your motivation is — have the courage to admit it.

The Investor’s job requires nurturing professional intuition. But it’s not like looking inside a crystal ball; this gut feeling is formulated by experience and constant research.

When you are empowered with knowledge, you hone your decision-making. Wise money allocation demands knowing everything about an asset in question: its purpose, the problem it solves, its category, its background, backing etc.

A comprehensive view of the market is a combo of objective and subjective information: white papers, charts and studies should be added up by interviews, opinions, reviews or tweets.

Make sure subjective information comes from credible people.

Finally, work with the professionals. The magnitude of global scam is impressive; sometimes it is hard to detect scammers at first glance. However, well-disguised rascals seem to have common traits; knowing them will help you avoid trouble.

Engage with regulated crypto exchanges: the regulatory aspect will be the major defining factor in who will stay in the market and who will fade away.

Final thoughts

For investing and trading in cryptocurrencies it is not necessary to have experience in classical financial markets. Since trading in these two markets differs only in liquidity, it therefore does not matter for an ordinary trader who operates with a small amount of funds.

At the same time, one has to bear in mind that the cryptocurrency market is more volatile, which is related to a lack of liquidity. In practice, the difference is that the price of almost any classical currency pair (we do not take into account exotic pairs) cannot be influenced by any single market participant.

As for cryptocurrency pairs, the price of even the most popular bitcoin / dollar pair can “push” professionals (which would be considered average in the classical market) in one direction or another.

This is the process we are witnessing now, when professional players entered the bitcoin market and began “reaping the harvest”.