2018 was one of the toughest years for cryptocurrency investors as the market shrunk from over USD 800 billion at the starting of the year to under USD 200 billion by the end. The cyclical nature of price movements in Bitcoin and other cryptocurrencies is nothing new. However, inexperienced investors keep falling prey to same mistakes that cause people to lose money in other investments. So as 2018 ends and a new year dawns, we have compiled a list of golden principles that investors should always keep in the backs of their minds to make long term gains in this market.
Investing More Than You Can Afford To Lose
Cryptocurrencies and other digital assets form a new asset class for the decentralized web. As with most financial instruments, it takes a long time for an asset to reach its true potential along with running into several roadblocks along the way. Cryptocurrencies have been around for only ten years compared to several hundred years that joint stock companies have seen. Therefore, it is only natural that compared to traditional equity markets these digital assets would see much more volatility in their prices as price discovery in the free market occurs. Since there is considerable risk in this venture, it also stands to reason that there would be much more potential for rewards. Indeed, many early investors can attest to the fact that cryptocurrencies can multiply their wealth manifold. Many young investors flock to the cryptocurrency market when the prices start rising and make their investments due to FOMO – the fear of missing out. However, it is always important to keep in mind that the value of these digital assets can also reduce due to market manipulation and less regulatory oversight. Therefore, people should not invest more money than they can afford to lose in order to keep their long term financial goals in check.
Investing To Get Rich Quick
As there is less regulatory oversight of these cryptocurrencies, there would inevitably be certain scams in this space like Bitconnect which shut down in January last year. Bitconnect was a Ponzi scheme disguised as a high-yield investment program which was offering very high interest for investors who would hold their Bitcoins on their platform. After the platform shut down, the cryptocurrency pegged to Bitconnect, BCC crashed 92%, and investors lost about $1 billion overnight. It’s easy to fall prey to the slick media campaigns that many of the shade blockchain projects run on social media and invest money in less than authentic projects. Investors need to remain vigilant and do their own research before investing in any projects or Initial Coin Offerings.
Trying To Timing The Market – Buy High, Sell Low
The day to day movements of any market whether it is a stock market or a cryptocurrency market are unpredictable. Investors should use technical indicators like relative strength index (RSI), and the moving average convergence-divergence (MACD) along with other overlays to make better decisions about entering and exiting the market. At the same time, it is important to realize that it is impossible to time the market correctly in the long run and so it is better to accumulate assets regardless of short term price movements. For doing so, it is important to pick the right projects to invest in and be convinced of the technology, development and long term prospects of the investment. People very commonly fall into the trap of buying a cryptocurrency right after a bull run when it is at its peak price hoping to take advantage of the momentum. However, price corrections are common after a big bull run and inexperienced investors often panic and sell their investment at a loss due to the fear of incurring even more losses. Investors can avoid this common mistake by thoroughly researching the projects that they invest in and by not trying to time the market, but slowly accumulating their cryptocurrencies long term.