Cryptocurrencies are not difficult to understand. They are just different from regular fiat currencies, necessitating a slightly different approach to comprehending them. They are also incredibly volatile and fully dependant on the emotions of investors because they are not governed by any centralised authority.
As a result, investors must be mindful of two things before investing: volatility and decentralisation. They might also follow some other recommendations before investing. My top five are listed below.
Consider the fundamentals.
I understand that this sounds ludicrous, because cryptocurrencies are thought to have no intrinsic value. As a result, determining the fundamentals is really difficult, right? Wrong. Each cryptocurrency is essentially a byproduct of the blockchain that underpins it.
• Powering example, ETH is the cryptocurrency for Ethereum, the decentralised banking platform that powers the entire world (DeFi).
• On the other hand, SHIB is the token for the Shiba Inu meme cryptocurrency, which has no practical purpose. It serves merely as a symbol for the underlying community.
Check the blockchain that drives the cryptocurrency you’re buying, as well as the problems it solves. Otherwise, it’s merely a meme-coin that fluctuates in value based on market mood.
The coin’s market cap, current liquidity, trading volume, and circulating supply should all be included in your foundations study. The circulating supply may be low in some cases, although this does not always affect the coin’s price. Solana is an example of this, with the majority of the native SOL tokens staked in the network.
Keep your secret keys safe.
When you build a “hot” cryptocurrency wallet (one that you install as an extension on your web browser), you’re prompted to write down a series of words and keep them safe. These words are nothing more than private keys that allow you to access the bitcoins you have stored on the blockchain. This is a must-have for anyone considering investing in cryptocurrencies. Remember that if you lose access to your private keys, you will lose access to your blockchain funds.
• If your private keys are stolen, you will lose access to your blockchain funds.
As a result, you should keep your private keys in a.txt file on your hard disc (and not on the cloud). Alternatively, you can write down that sequence of words on a piece of paper and keep it out of sight of everyone but yourself.
You can also save your investments on a hardware wallet if you intend to maintain them for a long time.
Always keep some cash on hand for gas expenses.
Let’s pretend you’re transferring ETH from your MetaMask to a cryptocurrency exchange in order to open a position. The asset you wish to buy is experiencing a significant price increase, and you expect it to continue. You choose whether or not to add gas fees in your ETH transaction when you transmit it. However, because the network is overburdened, your transaction continues to fail.
You won’t be able to finish the transaction if you only have a small amount of gas fees. You’ll also miss out on the opportunity to open a position.
To avoid situations like this, it’s a good idea to set aside some money in your wallet for things like gas. Depending on the size of your trades, this might range from $50 to $500.