Key things to know before investing in cryptocurrency

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Investing in cryptocurrency, as seen by many wealth managers, is one of the most profitable investment strategies in 2021.

Key things to know before investing in cryptocurrency
Investing in cryptocurrency, as seen by many wealth managers, is one of the most profitable investment strategies in 2021. We have often heard big players tell us one thing: “be it any direction, equity makes someone gain profit and some other a sad man.” This could be because of the volatile nature of stock markets.
And, now with more algorithmic trading taking place in the market, the art of making money has become a bit more precise than it was earlier. But, with that, comes a new market - cryptocurrency. You must have heard about it and how people have made money in the past decade, months or weeks.
Investing in cryptocurrency is fun and rewarding. The amount of profit you get in the crypto market in just one year will take more than ten years in the stock market. But with high rewards come high risks.
Here are the top 5 market-proven tips to safely invest in cryptocurrency:
Understand the market capitalisation of each coin
The first key thing to safely invest in cryptocurrency is to understand the market capitalisation aka the market cap of each coin. Market cap is nothing but the total net worth of all the coin’s outstanding in circulation. It is calculated by multiplying the outstanding coins in circulation by the current price of the coin. The reason it is important is that some coins are less expensive (for example Dogecoin) and newbies tend to start to buy a lot of it thinking that it will reach the price of bitcoin. But for those coins to reach the price of bitcoin, the coin market cap needs to reach more than that of bitcoin because of their unlimited coin circulation. Knowing the market of each coin will give a tentative idea of how a coin will perform in the future.
Understand the Use Case of the coins you are investing in
With 2021 being the year for crypto, the hype is all around. Everyone is talking about crypto every day. We see new cryptocurrency coming up every month. Most of them don’t usually have any use cases and are just built for speculation and hype. This is the reason, one needs to study the Use Case of the coins one is investing in. For example, bitcoin’s best use case is that it is replacing gold as the best store of value and hedge against inflation due to its scarcity, ether aims to be the next Web 3.0 with all the future of the internet build around its ecosystem etc. Today 90% of all DeFi projects are built on the Ethereum blockchain. Cryptocurrency like Cardano, aim to solve the economic gap problem by banking the unbanked with its fast transaction rate and low cost of building new blocks. By researching each specific coin and its use cases, one can understand where to invest to create the optimum result for the future.
Dollar-cost averaging
Considering the high volatility of the crypto market, it is always better to enter the market periodically to beat the volatility of the market. Dollar-cost averaging is an investment strategy where an investor divides the total amount to be invested across the periodic time frame. Unocoin’s Systematic Buying Plan (SBP) is an interesting financial concept that’s been ported and tailored to the crypto market. A systematic payment of a small amount over a continuous period, coupled with convenient payment through automated bank transfers makes this a lucrative option for investors. An SBP allows you to enter bitcoin or ether at regular intervals to beat its volatility by averaging out the costs.
Diversification of portfolio
“Don't put all your eggs in one basket”, is an idea which every investor follows. It is always recommended to put your money across multiple coins so that if one coin loses its value, you can recover the loss from the other coins. Many crypto investors follow a 6:3:1 ratio strategy while investing, it means investing 60 percent of their money in bitcoin, 30 percent in ether and 10 percent in other coins.
Using the stop limit feature to lower your loss
Oftentimes our investment decisions prove to be wrong and especially when you are trading in your initial years. 95 percent of the traders lose more than what they gain due to non-vigilance and poor research. Sometimes the market just goes in an unexpected direction. During a time like this, to minimize the loss, use the stop limit feature. It allows you to exit the market automatically once it drops down to the price you set and afford to lose. Unocoin also provides this feature on its platform to rescue its users.
Never invest more than you can afford to lose
“Don’t invest with your next month's rent, you might end up homeless”. One thing you have to understand while investing in any market is, the market doesn't care about your emotions. You may want to make maximum profit by investing all the money you have, but no one knows if the market will crash next hour or tomorrow. So before investing, understand the risk, make necessary calculations and get your thorough research.
The author, Sathvik Vishwanath, is CEO and Co-founder at Unocoin. The views expressed are personal

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