I was in the middle of a panel about adoption of blockchain, and other related technologies by corporate entities, we were taking questions, and from the audience came a non-related one: “I saw that you touch very important subjects, but how can I start to invest in crypto currencies without losing my funds?” which was the trigger for this article. Please note that the content below is not an investment advice, I am sharing my own findings, and experiences, please perform your own due diligence before committing any funds.
First, most of the crypto assets are utility coins or tokens, not securities, so the market overall is not yet regulated. While using the word “investor” when you place an amount to purchase a crypto asset is not the correct word, this is the assumption accepted these days. Being a non-regulated market, in theory, there is always risk to lose your funds, just that there are strategies to minimize, and almost eliminate this risk.
Most beginners start with a certain amount, small or big, and go to an exchange, and start a position, let’s use Bitcoin as an example, using the maximum leverage allowed for the platform. Using the leverage can bring you in theory massive gains, but also can wipe-out the account very fast as both the profits, and losses are multiplied.
Many crypto traders come from forex or stocks markets, are armed with a certain level of leverage, perform the fundamental analysis (they look at the market events) or the technical one (looking at the charts), and decide on a buy (long) or sell (short) position. But, one of the big influencers like Elon Musk says something, and within the fragile crypto space, over the next few minutes or hours, the market is shaking, and Bitcoin will go down from $50k to $40k. You may say, what a relief for the ones having a sell position. But the reality of the markets is that in the moments of high volatility due to the “up and down” movement of the chart, both buy and sell orders are liquidated. During those shaky moments, usually the platforms handling most of the transactions have tech issues, show errors or the platform doesn’t allow users to access their accounts, meaning they can’t close the position, or add more margin, and the positions are liquidated. Most beginners end up their crypto journey, usually being advised by the wrong educators.
But, there is a better way, and this is the scope of the article. You can simply purchase coins, and tokens & keep them for a long time. The strategy is called buy & hold. While the price may go up, or down, you will always have the same number of coins, and if the projects behind them are good, over time they will perform well. So you will have to learn how to identify good projects, which is not so complicated. You can use some of them for staking, and farming, meaning that you can also earn rewards for the coins. When a coin is reaching an all time high you can sell it for USDT, and purchase back after the correction, so you will purchase more coins from the same digital dollar amount. If you practice this simple strategy, you can lose the funds if the value of the coin or token goes to 0, the coin disappears from the market, the exchange goes bankrupt or the platform you stake or farm goes out of business or gets hacked. Next, is the structure of the portfolio.
If you allocate 100% of your portfolio on new, just launched projects, there may be a good return opportunity, but at the same time there is high risk of rugpull. The sweetspot I would say is to use 40% of the funds on Top 10 coins, 40% on the most important projects you can find in the rest of top 100, and 20% on just launched ones. Always spread these percentages between many projects so you can track them. When analysing a project, look at three things: the team behind it, if there is any innovation, and the potential for mass adoption.
Don’t forget that our initial goal is to preserve the capital, avoid being liquidated, and losing the funds, followed by a strategy of growth minimizing risks. Some of the 20% for just launched projects you can also use for high leverage positions. If you win, you can win a lot, if you lose, you may lose 1-3% of your total crypto holdings, so you will have a lot of capital to go further.
If you hold a coin which is losing let’s say 50%, don’t sell it out of desperation. If the project is good, the coin value is recovered. Like the stock market, the crypto space is driven by the same two emotions – greed, when the market goes up, and fear when the market goes down.
Next, when analysing projects, don’t follow exactly what the influencers are saying about the coin X which will do 100X. Listen to them, but perform your own due diligence, having in mind that most of the influencers buy these coins early, or are paid with them by the teams behind them and are selling their holdings while you may think that you have the chance to buy early. Also, when something is popping everywhere on social media, it is too late to enter. What happens during these moments is that there are a lot of newbies buying like crazy, the early buyers are selling so the price will most likely crash. When to buy? After the crash, also called a correction. You don’t need to start with a lot of money, start with what makes you comfortable, and make it a habit to add funds, every month, or whenever you want to.
Also, if you want to accumulate a certain coin, or a number of coins, play the game called Dollar Cost Average – purchase regularly at the market prices which can be up, and down so at the end you will have an average cost of acquisition.
Please have in mind that we, as humans can improve only what we are doing, not just thinking of doing without execution. You will become better, and better over time.