Why invest in cryptocurrencies? How to do it? Pitfalls to avoid… Many of you want to get started or have crossed the threshold, we explain all our advice.
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It is necessary to learn and understand the basics of economics, for example the law of supply and demand, the functioning of money, inflation and central banks. The offer of a good is the quantity of a product offered for sale by sellers for a given price.
Demand is the quantity of a product requested by buyers for a given price. Apart from special cases, the more the price increases, the more the quantity offered increases and the more the demand decreases. The price of a good is considered as an equilibrium quantity depending in particular on supply and demand.
This empirical principle is called the law of supply and demand. This law is often generalized by a law of markets, a name used to designate the law that governs a market, with or without state intervention.2) Learn and understand blockchain technology
It is important to learn and understand blockchain technology and the main projects behind the biggest players in the market. For example Bitcoin is like digital gold (a store of value against inflation or uncertainty)3) Learn and understand the basis of mining and market cycles
For example: halvings, accumulation, bullrun and bearmarket.
In English, halving means division by two. And that’s exactly what’s happening. Miners receive a set number of bitcoin as a reward for their work on the blockchain and mining a new block. This sum was set from the conception of bitcoin by Satoshi Nakamoto. At the very beginning of bitcoin, a miner received 50 bitcoins for each new block. But this situation has since changed: during the first halving, in 2012, the reward given to miners increased to 25 bitcoins. In 2016, during the second halving, it rose to 12.5.
Since the last halving of 2020, miners receive “only” 6.25 bitcoins for each new block. At the next halving, which is due to take place in 2024, the remuneration will increase to 3,125 bitcoins, and so on.4) Warning: The cryptocurrency market is not regulated
This means that the gendarmes of the French stock exchange (AMF) are not present. This implies that the market is extremely manipulated by whales (institutions that have a lot of media and financial means). Their job is to make money, and to have winners, you need losers.
When Musk has fun tweeting, prices drop or rise by 15%. Banks hunt for stop losses and cause crashes to buy lower to individuals who panic and sell. Since this market has become manipulated, it is increasingly difficult to make expectations and think logically. That is why, in my opinion, a strategy should be preferred.
Have an investment and risk management strategy!5) Adopt the right psychology
You have to adopt a good investor psychology. This means learning to control your feelings. Be aware that “whales” try to manipulate you every day, detach yourself from news and short-term variations. Be greedy in times of fear and be wary in times of euphoria. “The Fear Of Missing Out” (FOMO) is the fear of missing something, be careful not to buy when prices go up and sell when prices go down only under the influence of emotion.6) Have good money management
No “all in” is the basic rule in investment! You need to think about your resistance to stress. Most financial advisors recommend 5-20% of your total capital. If you are able to cash a -90% on your account for a few months during a possible bear market and fluctuations of thirty% on some days, then you are ready.7) Find your investment strategy
For this you need to think about your investment horizon over time. Are you rather short-term, inter-cycle or long-term? If you are short-term you should use levers, stop loss and take profit by knowing the risks.
If you are inter-cycle, you invest in interesting technical points and you are watching to enter and exit on the same market cycle.
Finally, if you are long-term over years, you should opt for an accumulation of tokens over several cycles and almost never sell while performing a Dollar Cost Averaging (DCA): buy and accumulate each month a fixed sum, regardless of the price.8) Think about the future potential
Think about the valuation over time of projects and crypto as a whole. The more you look the more you understand that these projects have a future (depending on the projects of course) and therefore you are more confident in your investments. Imagine investing in the internet in the 2000s.9) Beware of LEVERS!
It is a way to amplify the rise or fall of an asset with the same capital. For example, if you place $100 on ethereum with x4 leverage, your capital will vary with the same intensity as if you had invested $400 (a 1% change will result in a movement of $4 instead of $1).
Imagine that the investment increases by 25%. Super! You earned 100% (because 25% x4=100%). But if the investment suddenly loses 25%, you also lose 100% so you are liquidated, you have lost everything! This kind of sudden crash often appears in the world of crypto-currencies and it is impossible to predict it.10) Beware of trading!
Trading is different from investing because it is based on buying and selling over very short periods while investing arises over periods of several months or years.
According to the gendarmes of the French stock exchange (AMF), individuals practicing trading are losers in 95% of cases on the stock market (which is regulated). Imagine then on an unregulated market which is that of crypto-currencies. (Bonus) Find a good broker and pay attention to the fees.
Long-term fees can be catastrophic for your investments. As with positive compound interest, fees have an exponential negative effect over the years.
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Investing carries a risk of loss. Consider diversifying your portfolio and only invest a portion of your available savings on projects you understand. Past performance is not indicative of future performance, and achieving a project’s target rate of return is not a guarantee of performance.
The content available on The Investor’s Diary is for informational purposes only and does not constitute investment advice. This applies to assets as well as products, services and other investments.
