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Understanding Cryptocurrency Investment: Factors to Consider and Best Practices

crypto investment

One of the biggest investment potential is in the cryptocurrency. The rise of digital currency has opened a plethora of possibilities to earn money and generate capital. Millions of investors are now looking towards this rising market with hope in their eyes. With constant fluctuations always making it very volatile, investing in cryptocurrency can be a rough business. But if you have an aptitude for these investments and thorough knowledge, then you can easily navigate the tough waters and get to the destination.

 

What Factors Should I Consider Before Investing in Cryptocurrency

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Like any other currency, crypto is also prone to fluctuations based on a multitude of factors. But we have encapsulated these factors into major categories which makes it easier to keep track of the market. The factors we need to look deep into before beginning investing are –

  1. Market Attitude
  2. Liquidity
  3. Technology of Currency
  4. Fluctuation Rate
  5. Community Engagement
  6. Your Limits
  7. Security

 

  1. Market Attitude

Market attitude means what is market capitalization and what are the trends ongoing in current cryptocurrency. The sum value of Bitcoin can be calculated in the market. When you are going to buy cryptocurrency, learn about the market value. Higher market capitalization means that more people are investing and it is good.

  1. Liquidity

Liquidity means the efficiency with which cryptocurrency can be converted into your currency or cash. The higher the investment rate will be in the currency, the higher the will be trade volume and thus its liquidity level will rise. There are many currencies in the exchange which have high value but their liquidity level is low. You need to consider this.

  1. Technology of the Currency

Cryptocurrency is highly volatile. It’s pure digital. Millions of people are mining it on a minute basis. In this scenario, many low-level technologies are also used by currency which can lead to loss. You need to invest in a currency which is based on technology trusted and secured by high-level security. For this, you can look into the history of currency and how transactions are made in this currency.

  1. Fluctuation Rate

Fluctuations are a common occurrence in the crypto market. That is what makes it so exciting. The price of the cryptocurrencies goes up and down in seconds. Based on these fluctuations a pattern can be formed which will allow you to predict the future behaviour of the investors and the currency leading to higher benefits and a strong position in the market.

  1. Community Engagement

Elon Musk tweeted about Dodgecoin and it boomed. The whole Twitter community started investing in that currency which lead to a high increase in market capitalization. This is the power of community engagement. It is like social media. Viral currencies will make you earn more. You have to understand what the community is liking and how it can be manipulated. The more you are connected to the inner networks and understand the details, the more it will benefit you.

  1. Your Limits

By your limits we mean, what is the amount of capital you are ready to invest. That will allow you to look into diverse categories. Also, how much time you are ready to invest? And the awareness about this market. You will be doing the investment. You need to be very secure about these simple things. Based on these strong points you will be able to choose the currency and invest.

  1. Security

Security means the transaction success rate and frequency for the cryptocurrency. It is directly related to the level of technology used in cryptocurrency. High-level technology provides more security. Security breach in currency leads to theft and loss of investment. Also, the goodwill of the customers is lost. As the security level of the cryptocurrency increases, trust in the currency increases leading to profits.

 

What Practices Should I Follow to Generate Profit in Investing in Cryptocurrency?

Although everybody defines his/her technique and methodology to invest in the crypto market; there are certain basics which need to be looked into always. Based on the strong foundation of basic practices you can reach a high level of investment strategy which will yield long-term benefits. So let’s have a look at some practices to understand crypto investment better :

 

  1. Choosing the Right Wallet

The wallet is a common term that you need to get familiar with when you start investing in crypto. The wallet is the place where you will put your cryptocurrency. There are 3 types of wallets in the crypto market –

  • Software wallets – Online portals
  • Hardware or physical wallets – Storage devices
  • Paper wallets – keys printed on paper

 

  1. Selecting the Right Exchange

You can’t just randomly choose an exchange to start your crypto investment journey. There are many trusted exchange platforms like Binance, Kraken and more which provide a high level of security to start your investment. You will have to consider the fees, payment methods, limitations and security protocols to judge for yourself.

 

  1. Securing Keys

A private key is in the form of an alphanumeric code that will allow you to access your digital currency. This key is the basis of your investment. You will have to secure it in a place where it is away from theft and memorable so that you can use it from time to time.

 

  1. Reading White Papers

Novice investors put their money into currencies based on word of mouth. In the crypto market, more than word of mouth, white papers are trustworthy. Every crypto has one white paper where the record of its development era, time frame and general overview is given. You will get all the details from white papers allowing you to delve deeper into the understanding of currency and allowing you to choose better.

 

  1. Managing Risks

Risk is the major factor to consider and risk management is the best practice to follow in this volatile market. How do you do that? Well first of all you diversify your portfolio. Just like normal investments, you need to invest in diverse currencies, so that even in case of fluctuations, your overall balance remains in profit.

 

  1. Understand Taxes

Cryptocurrency is taxable. Tax understanding can affect your investment strategy greatly. You need to understand how your currency is being taxed and at what percentage. This will allow you to be in control of your profits and navigate this rough game. Tax preparation can be done through experts or through software which gives you deeper analysis.

 

Conclusion

Crypto investment is a simple yet complex game. It is simple as real currency investment but due to the high level of technology involved, it is more volatile. And that is the fun part. Based on a solid understanding of the market and practices, you can get into the game and start investing for a better future. Whether it is for a certain goal or for a major lifetime investment, when you have deep research and thorough understanding, you can take bigger risks. These risks are calculated based on the data you have accumulated through deep research. So, read, understand and do a small investment to get into the cryptocurrency market and fulfil your dreams.