How Much Should I Invest in Cryptocurrency as a Beginner?

June 4, 2023

Why people invest in cryptocurrency

The first question a beginner faces is «how much should i invest in cryptocurrency as a beginner».

The main problem for new investors is that they do not know what cryptocurrency to invest in. Popular coins mentioned on social media, advertised by stars, bloggers and artists, usually burst like a soap bubble within six months. Yes, you can earn on this scheme only if you managed to sell your assets on time.

One of the primary reasons of the investment in cryptocurrency is the potential for high returns on investment. Cryptocurrencies like Bitcoin have experienced significant growth over the years, with some investors seeing returns in the thousands of percent.

The interest in investing in cryptocurrencies is growing every year. As statistics show, it is especially interesting how you can invest in the most popular cryptocurrency – Bitcoin.

The first way to get Bitcoins is to buy them on a cryptocurrency exchange. A company must be chosen carefully and responsibly, taking into account its stability and reputation.

The second way to get Bitcoins is mining. If you do it solo and take it seriously, then mining is expensive. Especially now, in a time when the mining of coins is becoming more difficult and energy consuming process every day.

Potential risks and benefits of investing in cryptocurrency

It is up to you to decide and choose best cryptocurrencies for investment. The main rule: always weigh the risks. What are the possible risks?

  1. Volatility of cryptocurrencies.
    The course of many coins and tokens depends on many factors, some of which are beyond our control.
  2. Hacker attacks.
    According to analysts, this problem will bother investors and the market for a long time to come. Human nature is such that it always wants to earn dishonestly but quickly.

Traders equally trade in the major cryptocurrencies, such as BTC, ETH, USDT. They are easier to analyze, make forecasts and, accordingly, earn.

Key features of Bitcoin for traders:

  • Ruled by the principles of technical analysis.
  • Responds to news quite well.
  • Does not depend on altcoins.
  • Good dynamics and excellent liquidity.

In this regard, experienced traders choose the currency that is easier to analyze.

Investing in cryptocurrency also offers several potential benefits, including:

1. High returns. Cryptocurrencies can offer high returns, especially in the short term, due to their volatility and the potential for rapid price increases.

2. Decentralization. Cryptocurrencies do not belong to any centralized banking system; a private company or the government of some large state does not own them. Cryptocurrencies do not belong to anyone, which means that the process is not controlled by anyone for selfish purposes.

3. Security. During economic crises, people lose confidence in their national currencies and try to find an alternative to save their money. Cryptocurrencies, despite their volatility, are not subject to inflation.

Factors to consider before investing in cryptocurrency

Investing in cryptocurrency can be rewarding, but it's important to approach it with a careful and informed mindset.

First and foremost, conducting thorough research is paramount. It is crucial to acquire a comprehensive understanding of the technologies underlying the cryptocurrencies you are interested in, along with any potential risks or drawbacks associated with them. By dedicating time to educate yourself, you will enhance your ability to make well-informed decisions and significantly reduce the likelihood of costly mistakes.

Moreover, it is advisable to stay updated with the latest developments and news within the cryptocurrency market. The landscape is constantly evolving, and new information can greatly impact the value and performance of different cryptocurrencies. Keeping yourself informed through reputable sources will enable you to adapt your investment strategy accordingly and stay ahead of potential risks.

Another important consideration is the market cap and liquidity of the cryptocurrency. Generally speaking, larger market caps and higher liquidity may indicate a more stable investment option, while smaller or less liquid cryptocurrencies can be more volatile and risky.

Smaller investors need to watch the actions of the whales. They can affect the behavior of the course of a certain cryptocurrency and the entire market. Many members of the crypto community are analyzing the behavior of whales in order to understand the perspectives for the further movement of BTC or other cryptocurrencies.

Large orders are placed to buy at inflated prices. Others start buying coins in anticipation of its rapid growth. New and inexperienced investors try to invest as much as possible in a trending coin so as not to miss the opportunity. Lost Profit Syndrome or FOMO is included. The event is covered by news from crypto bloggers on social networks. The price of the coin reaches the desired level. Manipulators quickly sell assets. Dump. Price reduction to old costs. As a result, the coins bought at the peak of the price decrease in value in a short time.

How much should you invest?

Determine your investment goals

First, you should define your investment goals for crypto. You want to play quick, get profit right here and right now. Alternatively, are you planning a long-term investment?

Determine your risk tolerance

Determining your risk tolerance means understanding how much risk you are comfortable taking on in your investments. This can depend on factors such as your financial situation, goals, and personal preferences.

Calculate the amount of money you have at your disposal

It's important to take a realistic look at your finances. Then define how much money you have available for investment. This includes considering factors such as your income, expenses, debts, and savings.

Determine the percentage of your portfolio that you want to allocate to cryptocurrency

Investing can be a high-risk, high-reward proposition, so it's generally recommended that you allocate not a large percentage of your investment portfolio to cryptocurrency. The exact percentage will depend on the risk tolerance, goals, and financial situation.

Determine a strategy for investing in cryptocurrency

You should educate yourself on the basics of blockchain technology and how cryptocurrencies work. If you are not sure about how to develop a strategy, consider seeking the advice of a financial professional who has experience in this area.

Invest in cryptocurrency

After you carefully analyze the market and take into account all the factors, you can finally invest in cryptocurrency.

Tips for beginners on how to manage their cryptocurrency investments

  1. Educate yourself about cryptocurrency. It's essential to understand how it works, what factors affect its price, and how to store and trade it safely. You can start by reading news articles, watching educational videos, and joining online communities.
  2. Consider diversifying your cryptocurrency portfolio. Spreading your investments across multiple cryptocurrencies can help mitigate the impact of volatility on your overall holdings. By allocating funds to a variety of digital assets, you decrease the reliance on a single cryptocurrency's performance, thus reducing the potential risks associated with it.
  3. Observe the behavior of other investors. A beginner should invest in cryptocurrency considering the behavior of other investors. Whales are not prone to emotional and spontaneous decisions. None of them invests all available funds in cryptocurrencies. Digital assets are most often used for diversification. Whales continue to buy the main cryptocurrency Bitcoin. Novice investors should pay attention to the actions of whales, but do not repeat their strategies. Whales can coordinate their trades in order to crash or raise the market.
  4. Furthermore, engaging with and learning from the cryptocurrency community can prove beneficial. Participating in discussions, forums, and online communities focused on cryptocurrencies can provide valuable insights and perspectives. Interacting with experienced investors can broaden your knowledge base and offer practical advice that can assist in making more informed investment decisions.

Final thoughts

As a beginner, the question of how much to invest in cryptocurrency is an important consideration. It is crucial to approach crypto investments with caution and prudence. While the cryptocurrency market now offers various exchanges and wallets, it remains susceptible to unpredictable hacks and attacks. A single mistake can potentially lead to catastrophic shifts in the market.

The price of a cryptocurrency is influenced by a multitude of factors, some of which are observable and others that are unpredictable. These factors contribute to the fluctuation of coin prices, causing them to rise or fall. By diligently studying and monitoring trends, one can potentially capitalize on profitable opportunities.

By utilizing the knowledge and insights shared earlier, you can equip yourself with the knowledge and awareness needed to navigate the risks associated with investing in cryptocurrencies. Conduct thorough research, understand the technologies involved, stay informed about market trends, diversify your portfolio, and engage with the crypto community. These simple steps will minimize the likelihood of falling victim to common pitfalls and increase your chances of achieving favorable returns. Take charge of your cryptocurrency investments and position yourself for success by employing these strategies.

However, it is important to remember that investing in cryptocurrencies is not without risks, and the market can be highly volatile. It is advisable to exercise caution, seek professional advice if needed, and only invest funds that you are willing to lose. By adopting a thoughtful and informed approach, investors can position themselves for potential success in the dynamic world of cryptocurrencies.