In this blogpost we give away 7 essential bitcoin investment tips you can also use for other markets.
Before we start with the investment tips we want to answer some questions that are often asked around the topic of bitcoin. When you just want to read the investment tips skip the follow section
Is bitcoin safe?
Secure your wallet
Generally speaking yes, but there are some information you need to know. Like in real life, your value of bitcoin is stored in a wallet. The technology makes it easy to transfer any value around the globe under your control. Such great features also bring up security concerns which can be eliminated by applying best practices.
Bitcoin is volatile
From a value perspective you need to know that this asset class can be considered extremely volatile. The price of one bitcoin can decrease and increase dramatically over night. Therefore this asset class should be seen as “high risk” and you should not invest any amount unless you could cope with losing it all.
Payments are irreversible
Payments with Bitcoin cannot be undone. This implies that you should only transfer to people you trust or have a high reputation established. However even if, you cannot ask for a refund the technology detects typos and won’t let you send funds to an invalid address.
Bitcoin transactions are publicly listed
Bitcoin transactions are stored publicly and permanently on the network, which means that everyone can see the amounts traded between several addresses. Nevertheless, the identity behind the addresses are anonymous until you reveal them in a purchase and give away your personal details.
Regulations and government tax
The cryptocurrency is still not a legal currency. The jurisdiction requires you to pay income, sale, payroll and capital gain taxes on your belongings.
How old do i have to be to invest in bitcoin?
There’s nothing of the sort as a legitimate age to purchase bitcoin. In case you’re mature enough to welcome it, you ought to be mature enough to get it. Practically speaking however, most trades order a base age of 18, with regards to KYC prerequisites. It doesn’t make a difference how unmistakably you’ve examined your archives and marked your name: in case you’re underage, you’re not getting in.
How do i invest in bitcoin?
We created a seperate blogpost on how to buy your first bitcoin. You should definitely check it out!
Is it a good time to buy bitcoin?
No One can say if it is now the perfect moment to invest into bitcoin. Prices can rise or can go down and even specialists can only give indices what will happen next. In case you gained more knowledge about the asset class and think it is a good idea to invest we propose to start slowly and continuously put in some money. That beeing said we want to start with our 7 investment tips for cryptonoobs.
7 bitcoin & altcoin investment tips for crypto beginners
1. Cash is King
According to Warren Buffet cash is a big deal and he saves a lot of it in order to invest at any given time. Why does he do that?
The reason is “so that he can both withstand unprecedented losses and … quickly seize acquisition or investment opportunities.” In 2011 he published a letter to his shareholder where he reprinted a message from his grandfather he received as a young man: “ I have known a great many people who at some time or another have suffered in various ways simply because they did not have ready cash … i hope it never happens to you.”
That is the first financial advice we want to give to our community. You should always have an emergency fund for occurring opportunities to invest in but also to pay unexpected bills at any given moment in time.
It doesn’t matter how bullish you are on cryptocurrencies at this certain moments. Most of the times cryptocurrencies won’t pay your bills at the end of the month and your landlord does not care how many holdings you have on a specific coin.
2. Don’t change your lifestyle
It requires a great deal of boldness and a great deal of caution to make a great fortune; and when you have got it, it requires ten times as much wit to keep it. —Nathan Mayer Rothschild
As reported by BBC’s article the average person in the age range of 20 – 50 loses 50 % of an inheritance or large financial gift by changing their lifestyle and/or poor investments. Additionally to that a big sum go bankrupt during the first 5 years when they received the money.
In our case that means even though you make a good trade and earn some percentages on your trade, don’t get to excited and buy champagne bottles for you and your friends. Beginners often get caught in the excitement; in a bettor mindset which can lead to further bitcoin investments or even riskier trades.
In case to grow sustainable reflect on your trades, don’t rush to reinvest everything in a short period of time. Author and investor James Altucher has this valuable information for investors of all kind: “Don’t change your lifestyle for at least one year.”
3. Do your own research
There is a lot of cryptocurrency content out there – blogs, forums and even bitcoin investment videos like “Top 5 coins to watch in month x”. Those are good indicators and a valuable inspiration for you research but does not replace your own research.
Nearly every coin has its whitepaper accessible online. Before you invest into a specific project (coin) – we highly recommend you to study the coin and try to understand every aspect of it. In case you do not understand the project completely, get some distance and try it later. Do not invest if you do not feel comfortable or do not fully understand it.
There are so many opportunities out there and it does not matter when you miss one opportunity everyone is talking about. More important is that you know in what you invested.
So please guys invest your time for your investment and:
DO YOUR HOMEWORK!
4. Diversify your crypto portfolio
As we now have done our research for cryptocurrencies we like and the fundamentals are right we want to diversify our bitcoin investments in order to lower the risk. As one example you can invest across different sectors which serve different and interesting use cases.
We further recommend that not all your financial investment funds should go into crypto. There are also other investment classes like stocks, sport cards and many more. Putting all your money on one card can be very dangerous and refers more to gambling than financial education.
“If you invest and don’t diversify, you’re literally throwing out money. People don’t realize that diversification is beneficial even if it reduces your return. Why? Because it reduces your risk even more. Therefore, if you diversify and then use margin to increase your leverage to a risk level equivalent to that of a non diversified position, your return will probably be greater.” ~ Jeff Yass
So especially in the beginning it is important for inexperienced traders to diversify their bitcoin investments in order to lower risks.
5. Avoid a bad investment
This sounds like a no brainer to most of you, but a common mistake for bitcoin investment beginners is to rely on others opinion, a pump and dump group or follow the calls of so called experienced traders. There are a lot of traders out there who promise on social media channels certain gains on specific coins.
The problem with those groups or traders are that those people can take advantage of your non existing knowledge. It is a zero sum game which means that there will be winners but also losers. Those communities take advantage of your lack of knowledge and invest before you invest. When the price then rises they sell their stake with a profit and all gains are going to the people who made the call.
Don’t get us wrong there are also a lot of people with sophisticated knowledge which is supported by a solid bitcoin investment strategy. But before you jump right into calls of a so called guru you should analyze your facts.
We, Raf and me, also participated in a pump and dump group back in the day. Fired with quick profits we invested headless quite an amount in this group. The outcome? – We lost nearly ¾ of our initial bitcoin investment.
6. Learn to calculate altcoins in satoshi
Bitcoin is the dominant coin in the cryptocurrency market, since its start in 2009. For most altcoin trades you use bitcoins to buy a specific coin. Most people who are new in the crypto space tend to value exchange rates in Dollar.
Those new to crypto will in general worth things in dollars. In the interim, even prepared money brokers esteem coins in dollars. Be that as it may, enough crypto brokers will esteem coins in BTC for it to issue. In the event that you don’t know about the BTC diagrams, you won’t have the option to appropriately comprehend the patterns every other person is investigating and responding to.
You don’t need to make getting more BTC your objective, however you should have the BTC costs of altcoins on your radar. There are times when all coins go up, yet altcoins consistently free an incentive against Bitcoin. The individuals who realize will be the first to dump altcoins for Bitcoin; this will set off an endless loop that can bring about the stagnation of altcoin costs.
7. Manage your risk reward ratio
You can lose half your trades and still be profitable
This statement may seem confusing to you but it is right. Let me do an example:
When you enter a new position with the value of $1,000 by setting a stop loss at $900 and the prices fall you will not lose more than 100$. This is also not considered as bad, since the plunge of the chart can have several reasons like for example change of the current trend, wrong fundamental analysis or something else.
Let this scenario happen for three times in a row. What happened then? We will start to question ourselves: What did i do wrong? Is my decision making correct? Did i gather wrong information?
Certainly that’s worth assessing. But as long as you have stop losses, mental or automatic, or some way to make sure we don’t lose all of our money, then we can emerge profitable in the end.
Surprisingly after 4 unsuccessful trades you again buy a position for $1,000 and set once again a stop loss at $900. While waiting over 3 weeks with no price actions the price surges to $2,000 which is not rare in the cryptocurrency market.
Overall your profit now is $1,000 – $400 ( the previous triggered stop losses) which equals $600 in total.
That were our tips for bitcoin investment for beginners. Leave us a comment if you think we forgot some bitcoin investment tips!