Investing 101: How not to lose all your money with Bitcoin?
Get rich quick strategies never work well. Many inexperienced investors struggle to determine how much they can earn or lose with a particular asset. They simply buy something and hold it without sufficient understanding. There is a term for this investing; it’s called gambling. When you trade without a set of determined rules, you are, in fact, gambling. Instead of long-term returns, such a strategy results in losses.
Every professional investor builds his investing strategy with risk management in mind. Risk is necessary and inseparable from the asset’s performance; we just can cut it to an acceptable minimum. That is where diversification comes in. This technique helps us to construct our investment portfolio of different kinds of assets. In other words, don’t put all your eggs in one basket.
Why is it so important?
Diversification mixes a wide variety of investments within a portfolio. It limits portfolio risks, so returns from one asset can cover losses from another. For example, you finally decide to buy one “promising” altcoin that everyone has been talking about. As a wise investor, you know about diversification and spend on your investment only a little part of your funds (let’s say, ten percent). You can also purchase Bitcoin cloud mining contract with the other part.
After a few weeks, the “promising” project turned out to be a scam. You lost ten percent of your money but managed to cover some losses with profit coming from cloud mining. Imagine how things would’ve gone if you put all your life savings in that altcoin?
In the case of cryptocurrency, don’t chase one coin even if like it. Imagine that you invested your entire life savings in Bitcoin at the beginning of 2018. Since then the Bitcoin price went down by approximately 50 percent. This means you would have lost almost half of your money!
You can also use this strategy to hedge against other risks. If BTC price against the US dollar is trending down, it is rational to hold a decent amount of currency in your pockets. Remember: always keep some money to buy Bitcoin after deep corrections. Not only it helps to be protected from potential losses, but also raises your chance to make a good profit in the long run.
Also, last but not least — diversification is the key to higher returns long-term. Crashes of Bitcoin price may be scary, but on a large scale, cryptocurrency can make you rich. Just imagine: in January 2019 BTC price was below 4000 dollars line. Right now Bitcoin is trading at almost 10 000 dollars line!
OK, I bought my first bitcoin, what’s next?
Bitcoins can be stored in two kinds of wallet: hot and cold. First one is the best option for those who will move coins very often. There are many hot wallet providers; here are the most popular among them:
- Coinbase (also a popular cryptocurrency exchange);
- Electrum (software that allows your bitcoins to be stored on your laptop);
- Blockchain (an online hot wallet);
- Mycelium (hot wallet for smartphones, available for Android or iPhone).
A cold wallet is best suited for long-term storage of bitcoins. Cold wallets allow you to download and store your coins on a small encrypted portable device. They cost as much as 100 dollars. There are two most popular cold wallets providers: Trezors and Ledger Nano.
Are there any pitfalls?
Actually, yes. Diversification is a pretty time-consuming practice, which limits your gains short-term. If you seek for a quick profit (maybe even daily) consider trading cryptocurrencies. Trading is tough too, but it can bring you more bucks with proper strategy.
Remember, you can make money in the crypto industry even without buying Bitcoin or altcoins. Bitcoin cloud mining can be an excellent alternative to traditional investing. You also don’t need any specialized hardware or software to mine bitcoin nowadays. Visit Hashmart.io and buy cryptocurrency mining contracts to start to receive rewards daily!