As a new method of growing your wealth, investing in cryptocurrencies has gained traction among people with a thirst for massively instant returns. However, considering how new it is, it will take some time for beginners to understand the finer points of managing their digital assets.
Just like managing any other investment vehicle, your success in cryptocurrency investing will depend heavily on how well you manage your portfolio. It gets very intricate from there, but knowing basic methods and tools should help you achieve greater profitability. If you are lost in the terms and technicalities of managing your crypto-portfolio, here are some of the best tips you might want to apply.
- Stay rational
It’s easy to lose yourself in the hype for Bitcoin and Ethereum, but any veteran investor will tell you the dangers of letting your emotions dictate your strategy. Given that crypto markets are known for their high levels of volatility especially during crisis situations, it’s important not to take any kind of drastic action. You wouldn’t want to go where the crowd goes, so always look at trends from a critical perspective, have patience, and weigh your decisions.
- Learn about local cryptocurrency rules
Up until now, cryptocurrency markets have gone largely unregulated. Now as the total market cap has reached roughly $240 billion, governments are introducing legislation in order to preserve the value of fiat currencies. Such legislation as the Cryptocurrency Act of 2020 and the Bank Secrecy Act which prescribes Bitcoin ATM regulation have definitely created legal and technical barriers that newbie investors will have to analyze to decide what to do with their portfolios.
- Diversify your crypto assets
Diversifying your portfolio allows you to reduce your risks and maximize your returns when one type of digital asset underperforms. Other than digital assets, you may also include traditional assets as well in case the entire cryptocurrency system is undergoing a massive disruption. It also helps to allocate a certain percentage of your investment across different cryptocurrency is also important. Aim for a standard monthly allocation of 1% for every digital asset you have. You certainly don’t want to put all your eggs in one basket, so be very cautious with how you allocate your resources for greater gains.
- Develop an exit strategy
Nothing lasts forever. The prosperity that cryptocurrencies bring will have its end. Until that time comes, it’s important to prepare a detailed plan for how you are going to leave the market, cut your losses, and reinvest what you have gained. A sound exit strategy should include making tax payments, finding opportunities in the traditional assets, and setting a price as you unload your cryptocurrencies. By setting up your game plan, you can keep yourself from getting hit hard when the value of digital assets begins to free-fall.
When managing your cryptocurrency portfolio, a great deal of research is very important. That said, perhaps the best advice you can get is to not assume you are here to make money. You’re here to win the long game.
Written by Bryan Shin.
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