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Cryptocurrency Investment

Cryptocurrency Investment Guide

By April 13, 2018 July 26th, 2018 No Comments

Why invest in cryptocurrencies?

Cryptocurrencies are now well and truly considered an alternative asset class by mainstream investors. Seen as somewhat of a geek-like technology experiment back in 2009, they have become mainstream enough to be a solid investment to add to any portfolio in the goal of diversification. Cryptocurrency investment is becoming more popular by the day, which really enforces the need for good education.

Diversification is what any savvy investor does to their investments, which is to spread their money across different asset classes and markets to ensure risk management is applied in the (certain) case of volatility in any one market. For example, diversification can reduce losses when one market is down, but another is up, i.e. if/when the stock market has a correction, more money often flows into another asset class (i.e. crypto) and hedges against the loss. In other words, diversification is a risk management strategy to create balance in a portfolio.

This is where cryptocurrency has become a new emerging market for many investors and institutions. They have seen the huge speculative value of many of the most popular coins increase in value ten times over and more, which is almost unheard of in other asset classes.

They have also seen the decentralisation philosophy take hold and spark the minds of many well-experienced investors that investing in a decentralised marketplace is a wise thing to do – especially when it’s at its infancy. Further, for many technology enthusiasts, the space is one of the most exciting to be involved in at this point in time with the world slowly starting to realise that cryptocurrency, tokens and digital stores of value are the future.

Many in the cryptocurrency space are excited about the new technology, the advancements (the blockchain), the different ways of thinking (decentralisation), and the passion that cryptocurrency has invoked across the world, proving it to be one of the most hyped changes coming in the future.

Image of bitcoins between two boomerangs, symbolising Australia's close relationship with cryptocurrency investment and blockchain technology

What is ‘cryptocurrency investment’?

Investing in cryptocurrency is typically done with an online exchange. Similar to an online broker such as Commsec for the Australian (ASX) stock market, an investor joins a cryptocurrency exchange, processes their Know Your Customer (KYC) requirements and is then free to trade.

Check out our Australian Exchanges Guide on how to safely buy cryptocurrencies in Australia.

An investor can either transfer fiat (cash) into their cryptocurrency account and use it to purchase a range of cryptocurrencies and tokens, or they deposit cryptocurrency they have gained through other means; for example, if they have received Bitcoin from someone for payment of goods and services or they have mined their own Bitcoin and have it in their own personal wallet and wish to trade it for another coin.

Many Australian exchanges accept the depositing of fiat currency though common methods such as BPAY or PoLi, however many other exchanges around the world do not, and only allow cryptocurrency to be traded (bought and sold) on their platform. For example, CoinSpot, an Australian exchange suited towards new investors and newbies to the crypto marketplace, allows fiat deposits and withdrawals. However, Binance, one of the world’s biggest exchanges currently based in China, does not allow fiat deposits or withdrawals, and an investor must deposit their own cryptocurrency to start trading.

An image of a crocodile with a speech bubble that says "Don't worry, mate I don't bite hard", referring to the risks of cryptocurrency investment

Cryptocurrency Investment is risky!

Yes, the hype with cryptocurrency is real and maybe one day we will all look back on this moment in time and realise we were at the very beginning of a monumental change in the way we view the exchange of value with each other. We may also look back and have our eyes bulge out of our heads at how ‘cheap’ cryptocurrency was (and why didn’t we buy more). However, like with any form of investing, there are risks.

As with any investment across the board, risks are inherent to wanting to increase your money and make percentage gains when speculating on asset classes. Even stashing your paper money under your mattress has risks involved. How investors mitigate these risks is through risk management and applying fundamental trading techniques to their overall investment strategy.

There are golden rules to any type of investing and some of them are to be found below. This is not a complete list, but more a guide to be aware of. Before you consider investing, you need to be fully aware of the risks involved. Naturally, this is not financial advice and we do not offer financial guidance. Do your own research.

An image of a koala and a blackboard that says "The golden rules of investing", referring to following rules to avoid risks for cryptocurrency investment

The Golden rules of Cryptocurrency Investment

Never invest more than you are willing to lose

Any kind of investment carries risk, however, cryptocurrencies could be seen as one of the most risky investments due to their volatility, market immaturity, incoming global regulation, history of market manipulation, and illiquidity. Investors that bought in during the December ‘17 – January ‘18 bull-run would now be down around 70 to 80%, which is why it is important to educate yourself and understand the risks involved with cryptocurrency investment.

Understand what you are buying and why you feel it’s a good value proposition

A common term you will hear in cryptocurrencies is DYOR, which is an acronym for ‘Do your own research’, and while it’s an easy way for people to manage risk, it’s not always easy for the investor to know where to start. Resources on our site such as our simply explained guides for Bitcoin, Ethereum, NEO and more are aimed at explaining in simple terms the technology and economics of common cryptocurrencies. We still advise readers to research further by looking for other materials commonly found on the internet.

Watch for hype and euphoria around a particular cryptocurrency

Like some Hollywood blockbusters (that end up being major duds), certain cryptocurrencies get over-hyped in the market. As mentioned above, do you own research and watch for things like pump and dumps, social-media (over) influencers with an agenda on a certain coin, or market manipulation. These things can and do happen, and it’s easy to get sucked into the hype. Just because you see someone tweet how amazing a coin is going to be on Twitter, does not make it true.

Long-term strategies are a tried and true method

Long term strategies work, and it’s best not to panic sell when things start to go down. During a bear market, it’s best to ride it out and take a long-term strategy. Timing the market and trying to day trade is a very high risk proposition. There’s even a saying among trading circles – the 90/90/90 rule. It means that 90% of new traders will lose 90% of their money in 90 days, generally speaking. Think long term, and only day trade if you know exactly what you are doing.

Learn how to stay calm in bull markets (i.e. don’t put money in you don’t have)

Staying calm in bull markets is just as important as staying calm in a bear market. Don’t lose your cool and start investing money that you don’t have (e.g. taking out a mortgage) or over-extending yourself financially because you’re in FOMO mode (fear of missing out).

Try to keep emotion out of your trades and investments.

Invest because you believe in the underlying technology, coin, token, team or service, not because you think the hype is so huge it’s going to get you 10x gains for no reason. Keep your emotions in check and don’t let your positions dictate your trades. That’s when mistakes are easily made.

Knowledge is power

As with anything in life, knowledge is power and it’s crucial to being a successful investor, whether in stocks or cryptocurrencies. Knowledge, education and experience are the most powerful tools are your disposal.

Our well-regarded cryptocurrency course, Cryptocurrency Investment Fundamentals, runs on the educational website, Udemy, and has been rated the highest in the categories in business and investment. For anyone new to the world of cryptocurrency and wanting to invest, we would highly recommend taking the course and getting a good foundation of knowledge before starting to invest.

Unfortunately, like with any investment, real, hard-earned money can and does get lost by people each and every day through lack of experience, bad decisions (irrational), mistakes and lack of knowledge and understanding.

So what are you waiting for, start learning!

Disclaimer: The information in this guide and the links provided are for general information only and should not be taken as constituting professional advice from the website – Cryptocurrency Australia. We are not financial advisers. You should consider seeking independent legal, financial, taxation or other advice which relates to your unique circumstances before making investment choices.

Attribution – Images by Freepik and licensed under Creative Commons BY 3.0, with thanks.

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