Bitcoin recently celebrated its 13 years of existence. As the original cryptocurrency, it would not be wrong for it to represent the age of the crypto industry. While this industry has been here for well over a decade, it is only recently that mainstream investors have shown any degree of respectable interest in it. Decentralization and high market volatility are two elements native to this industry that investors are most concerned about.
As you step into 2022 and with more investors than ever interested in cryptos, it is important to follow the right steps to increase the chances of returns. As an investor, it is important to follow certain basic rules when investing in this apparently nascent industry.
Here are 4 crypto investment rules that you should follow to improve your chances of returns from crypto in 2022 and the future.
i. Conduct In-depth Research
There is a lot of information available online to help you with your research process. There are different types of resources including:
- Crypto tools
- Charts
- Whitepapers
- Indicators
- Educational resources
Crypto offers a unique space with a high degree of unpredictability. The more knowledge and information you have, the better it is.
Even when it gives you a minor edge, it can make a big difference in your investment strategies. Some of the key areas you should focus on studying and researching are as follows:
- Fundamental Analysis: New cryptocurrencies are launched almost every week. The knowledge of tokenomics, market cap, roadmap, and utilities can help you make the right choices. If you are not used to the concept of basic analysis, a reputable Bitcoin exchange can help ensure that only secure, reliable, and verified tokens are offered for investment.
- Coin & Blockchain Utilities: It will help to study and understand the real-world utilities of a blockchain before investing in it. A lot goes on behind a coin. The more projects it supports, the greater stability it is likely to have. For example, Ethereum supports thousands of projects and this is a big factor contributing to its steady growth over the years.
- Technical Analysis: Volatile and erratic movements seem to be the norm with the crypto market. The same is expected in 2022 as well. Thorough technical analysis can help you make more reliable and better predictions on these dramatic market movements than others.
ii. Take Volatility into Account
The current crypto market is undergoing a massive pump. This is expected to further increase the volatility in the near future when investors will start cashing out in massive numbers. The ‘Pump and Dump’ cycle is common in this market. Over time, you are likely to see some consolidation. However, you should always take volatility into account when investing in digital coins.
The following tips should help you in this regard:
- Focus on spending more on prominent coins with a long and stable history
- Avoid investing in tokens that you don’t understand
- Avoid tokens that offer sudden movements. Such coins are likely to get washed out in a bear market.
Even when you choose prominent digital currencies, it is recommended to invest only what you are ready to lose.
iii. Avoid Riding the Hype
Do you plan on following Elon Musk or Mark Cuban for their tweets on cryptos before making your investment decisions? It is recommended to avoid such a strategy. Smart investors are now more focused on utilities than crypto hype.
While avoiding hype, it is important to follow relevant important events. The types of news you should follow when making your crypto investment decisions include:
- Global events
- Regulatory developments
- Technological developments
While there are many potential market movements that are expected to take form in the near future, some of the most sought-after ones are as follows:
- Cryptocurrency regulations by governments and central banks
- The implementation of ETH 2.0
- Launch of CBDCs all over the world
- The growth of NFTs
- Development of operational DeFi products with revenue generation models
- Major corporations getting into the Metaverse space
iv. Maintain a Balanced Portfolio
When it comes to giving space to cryptos in your portfolio, it is important to determine how much risk you should be taking. As a young or new investor, your crypto exposure should be no more than 10%. As an experienced investor, it should be limited to 5%
While following these rules, it is generally recommended to choose tokens with high market caps. Sound investors should avoid looking at cryptocurrencies as get-rich-quick opportunities. If you are an investor that wants to make trading a full-time job, you will have to keep track of the fast developments in the industry. It is also important to understand new and different technologies such as NFTs and DeFi.
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