Cryptos are now well established in the financial landscape. More and more institutions, managers, or investors are paying attention to it as a market principle. The emergence of the crypto industry in just a few years has contributed to the emergence of thousands of cryptocurrencies. Difficult to navigate, to establish a clear strategy and to have a defined investment benchmark. Back on 7 fundamental rules to start investing in virtual currencies and trade cryptocurrencies well. Have an investment plan in cryptocurrency
Determine your crypto investor profile
A major rule to be interested in crypto-currencies is to be in agreement with your expectations. There are several thousand cryptocurrencies with various characteristics. Many are illiquid and therefore riskier. The less important of these cryptos are more akin to betting than investing. Apart from the consideration of risk, it is therefore more relevant to own liquid crypto-currencies in a medium-term perspective. In the long run, the important thing will be the selection of the asset in question, and thus risk aversion.
Each investor has a different profile. It is important to determine the acceptance of your maximum loss to measure the risks you are willing to incur.
It is also important to set time horizons: should I invest in the very short term, in the medium term, in the long term?
On a profile of a private investor who is not full-time in his investment, it is for example preferable to favor the medium / long term in order to avoid strong variations in the short term (a few days / weeks). Sort virtual currencies according to your profile
Just like stocks on the stock market, there are the must-haves. The main cryptos (in valuation) to date are: Bitcoin ($280 billion); Ethereum ($50bn); Thether ($16bn); Ripple ($10bn). These are a bit like the big stock market indices.
The example of Ethereum (ETH) is quite revealing. Many crypto companies issue “Tokens”, the very crude equivalent of the shares of “crypto” companies on the stock exchange, which for a large part of these tokens are based on the ETH Blockchain. This is the case of cryptos like BNB, OMG, Augur, CHSB SwissBorg, etc.
These tokens can be exchanged. Each token must be deepened in detail before any investment. Choosing to bet on the “indices” of the industry (ETH, BTC, etc …) or the actors of the industry (tokens essentially) are two elements to dissociate. The largest cryptos make it possible to spread the risk while benefiting from the emergence of the industry. This is less the case for small cryptos (especially those with less than a few tens of millions of capitalization) where the risk is significantly higher. Think about an investment strategy in virtual currency
Define a strategy to invest or trade cryptocurrency
Depending on your profile, it is important to determine a positioning frequency and your degree of coverage. These are the fundamentals of money management. It is therefore important to answer a few fundamental questions:
- What is my availability to invest? What are my time horizons? What extreme movements can I expect over this period?
- What will be the ideal distribution between cryptos of different sizes? Favor the most liquid? The least liquid?
- According to these criteria, it is important to opt for an optimal money management strategy.
Getting your bearings and gradually investing in cryptos
The most important thing is then to get your bearings, especially for beginners. It is often recommended to gradually enter into investment. Acquiring progressive experience minimizes the risk that remains high with the lack of experience (via regular observation of the market, books, a logbook, etc … Dozens of techniques exist). It is better to get your bearings gradually: pay attention to leverage, etc. This experience will allow you to refine your strategy as close as possible to your investor psychology. This is a key parameter for the stability and consistency of your strategy. Virtual currency: “what is invested is lost”
This is a saying that is often used, especially when you start in the matter. It is better to consider what is invested “as lost”, in the sense that trading cryptos should in no way involve the mobilization of capital that you will need. Compliance with this rule is a matter of safety. Cryptos do not follow an exponential price line and their volatility remains high, which is not necessarily a bad thing in itself in terms of trading.
But poor management and a bad economic situation can quickly negatively multiply these characteristics of cryptos and be expensive. Depriving oneself of personal needs to create crypto capital is often observed, especially among the young audience that the industry concentrates. Trading cryptos is good, with what you don’t need is better. Cryptocurrencies do not systematically make rich
Cryptos have generated a very large number of wealthy people, there is no shortage of promises of very fast wealth and there are many offers promising to become rich in a short time using cryptos. Warning: a good deal that comes to you is usually never a good deal. Beware of sites that convey the idea that your crypto investments will allow you to get rich quickly. Do not hesitate to consult the AMF’s blacklist beforehand.
Although short-term trading is often put forward, it is, for the inexperienced, one of the riskiest approaches. To multiply one’s positions without sufficient skills is to systematically multiply one’s risk. Again, it depends on your profile.
There are no miracles on the price of cryptos. The management of crypto assets, so that it represents a somewhat significant part of your income, requires significant capital and skills. Bitcoin, Ethereum, Ripple: diversify your cryptocurrency portfolioCryptoValuizationAvery daily volume traded in 2020Average annual performance of recent yearsBitcoin (BTC)$280bn $25/35bn +259% (last 5 years)Ethereum (ETH)$52bn $12/18bn +1,948% (last 4 years)Ripple (XRP)$12bn $1.5/2.5bn-29% (last 3 years)
This synthesis of the characteristics of the main virtual currencies to date makes it possible to identify the degree of liquidity and performance of each crypto. Ethereum, in comparison to its valuation, remains one of the most liquid cryptos, and also offers high performance. For its part, Bitcoin remains very liquid too and offers particularly interesting annual average returns.
In this table you will be able to see the differences that exist between cryptos in terms of volatility. Ripple, valued 23 times less than BTC, belongs to the category of cryptos that already have relatively high volatility. It is recommended to differentiate “utility” cryptos (BTC, ETH, etc.) from tokens and purely speculative currencies. Depending on these parameters, you will have to ensure the proper diversification of your portfolio which will be a pillar of your strategy. It is often interesting to mix highly liquid and safer cryptoassets with less liquid and longer-term cryptoassets. Choosing the right trading platform and online broker
The quality of the work tool remains important. The features available on the trading platform, the fees applied by the online broker (retracts, etc.), the offer of cryptos available or the liquidity of the platform are all criteria to take into account in the choice of your investment / trading tool.
