Over the last 12 months, cryptocurrencies have gone entirely mainstream. We now have people from all walks of life investing in currencies that, to be honest, we know very little about.
Since 2011, Bitcoin has risen in value by over 25000%, and new cryptocurrencies have come on board every year since.
The potential for quick gains and the emotional investment that people will ordinarily put into trading and currency investment can quickly lead to passionate and sometimes reckless commitment.
Some Background into Investor Attitudes
There are many reasons why people are investing more and more in cryptocurrencies. Some, understand the technology: They see its value and have been quick to throw in their lot. For some, the investment represents a social commitment that can cross national and cultural boundaries.
For others, who see risks in the dollar, cryptocurrencies are a hedge against failing currencies - a fall and possible collapse which many believe is inevitable.
Today, the price movements of cryptocurrencies are considered by some investors to be a better indicator of volatility in the market - equal in some respects to the VIX.
These indicators are promising to investors and allow them to transfer funds off their balance sheets in order to decrease credit risk.
The CBOE Volatility Index (VIX) is an index within the market that measures the levels of volatility of currencies over a 30-day span. It predicts market volatility and tends to pay off over-time.
In many ways, Bitcoin represents the new VIX as a means of staying ahead fo the credit risk curve, at least as far as the banking and finance sector goes.
Some Strategies for Those Who Want to Invest in Crypto Currencies
Know Your Strengths and Weaknesses
Understand your own built-in biases before you start trading. Take an honest inventory of where you think you might be weak when it comes to habits and patterns of addiction.
If you're not paying attention when it comes to cryptocurrency trading you may end up putting more money on the line then you can afford to lose.
Trading crypto is not a hobby. There is money that can be lost - and lost quickly.
An excellent example of crypto's volatility was seen in September 2017 when Litecoins value fell by over 50% within 14 days the recovery talk over 60 days. Cryptocurrencies move up and down and can often shift dramatically in a short time expand.
As a general rule, you should avoid leverage. Leverage are those funds which are linked to you by a broker. Wait until you have gained considerable experience in cryptocurrency trading with your own funds before looking to a broker.
Brokerage is appealing because the potential is there for higher profits with small cryptocurrency market changes. But, it can also increase your financial losses if the market takes a turn for the worst.
Diversify Your Crypto Portfolio
Keep your eye on the whole cryptocurrency market and not just one coin. In order to benefit from the overall rise in cryptocurrency value, it is probably best that you diversify the coins and currencies in which you invest.
Not all cryptocurrencies will see games at the same rate, and you would be surprised that the number of smaller cryptocurrencies that have seen much more significant increases than Bitcoin over the last 12 months.
In the last two years, for example, Corgicoin increased by over 60,000x. Bitcoin also enjoyed favourable conditions with an increase of 34x.
While Bitcoin may be seen as the more stable of the two currencies and, you would have enjoyed gains if you were investing in Bitcoin. It's also noteworthy that you would have had considerably more gains if you had diversified your portfolio to include Corgicoin.
So, where possible, budget so that you can trade in more than one currency and monitor the entire market in order to see which currencies are currently fluctuating and which are moving in more favourable directions.
Become Part of the Crypto Community
Starting with a few of these principles is an excellent way to enter the market.
However, there is plenty of room to grow in this rapidly changing environment. One of the best ways to develop your own skills in trading is to engage the cryptocurrency community online. Through these communities, you're going to meet all kinds of characters.
Some will be well educated, and experienced traders and others may be like yourself, new to the market. But, by participating and watching the conversations of others, you're going to become far more adept in your own crypto trading decisions.
The cryptocurrency market moves at a cracking pace when compared to other financial markets. New coins are entering the market on an almost daily basis, and you need to be able to discern the good from the bad.
Asking plenty of questions and engaging professional and amateur communities is going to broaden your understanding of these markets, allow you to monitor trends and ask plenty of questions to increase your own knowledge of the cryptocurrency investment possibilities.
Feature Image, Pexels, CC0 License
David is an Australian author with an interest in finance and family and writes for Born2Invest and Self Growth.