10 Simple Rules for Cryptocurrency Investing

Cryptocurrency investing, like many forms of investing, is a practice that benefits from patience and devotion to the craft. Below are some simple rules to follow to make your trading experience better (and hopefully, more profitable):

1. Make a plan. For successful investing you need to have a strategy, including knowing what your investment horizon (how long you will hold) and trading style (active or passive). You should what return you want to earn and the appropriate amount of risk to achieve that. Markets can be unpredictable and going into trading without a well thought out plan increases the risk of capital loss. You will greatly limit your chance of making a short-sighted move by being prepared beforehand.
2. Consider an anchor position of Bitcoin. While cryptocurrency overall is a volatile asset class, Bitcoin historically has been more stable than non-Bitcoin “altcoins”. While high quality altcoins can provide superior returns, they often come with much higher risks. If you’ve made the decision to own cryptocurrency, an anchor position in Bitcoin will bring some relative stability to your crypto portfolio.
3. Do not invest all funds into the market right away. Cryptocurrency’s volatility provides frequent opportunities to “buy the dip”, enabling you to get better prices when investor sentiment is overly negative. If you have no reserve capital, you aren’t able to take advantage of these price drops.
4. Avoid keeping all your cryptocurrency on exchanges. While it’s often more convenient to simply leave cryptocurrency on the exchange, it comes with significantly higher risks. Even the best of crypto exchanges have been hacked. Holding crypto through hardware or other self custody wallets adds more work for you, but gives protection in the case exchanges are hacked or lose your funds.
5. Don’t worry about missing run-ups and avoid FOMO. It’s not uncommon for seemingly random cryptocurrencies to see huge surges in value in short periods of time. That’s not the time to jump in and invest. It’s better to invest in assets and projects you are familiar with and whose prospects you can gauge based on research, news, and analysis. A good rule of thumb is: if you don’t understand, don’t invest.
6. Take profits. If you have a large unrealized gain on an open position, don’t be afraid to sell and take a profit. As seen in the 2017/2018 run-up and subsequent drop, prices can and do drop as much as they grow. Missing out on gains after you sell is a small problem when you’ve successfully profited from a trade already. There are risks to holding open positions, even if they have large unrealized gains.
7. Do not panic on large drops and gains. Investing is heavily driven by human emotion and sentiment. Many new or inexperienced investors make emotional, short-sighted decisions when there are huge drops or gains in price. The best thing to do in periods of high volatility (positive or negative) is to step back and assess the situation as unemotionally as you can. Revisit your trading plan. If you’ve decided to pursue a more active trading strategy, you want to operate the opposite way of human emotion: buying when there has been large drops and selling when there has been huge gains. If you are holding, keep in mind that large drops (80%+ drawdowns) have occured on multiple occasions in cryptocurrency and will likely continue to occur over time.
8. Use stop-loss orders to cap your losses and set boundaries. If there is a certain level where you are a seller of an asset — to retain gains or to limit losses, you can set stop losses to automatically sell when the price hits a target. Be mindful of regular volatility when setting stop-losses as it is not unusual for prices to fluctuate 5–10% on a single day. Stop losses can be a good way to pre-program unemotional trades so you aren’t making a decision to sell or hold in the heat of the moment.
9. Track news and stay informed. The cryptocurrency world evolves very quickly. New information, positive or negative can dramatically alter an investment thesis for a given project. Continually revisit your established viewpoints on a cryptocurrency investment in the light of new developments. Keep a close eye on project and team updates to make sure you are still excited and optimistic at your investment level.
10. Do not invest more than you are ready to lose. Cryptocurrency is an exciting asset class, but remains riskier and different than traditional investing. It’s very important to understand the risks with cryptocurrency and only allocate capital you are ready and willing to lose.

Like all asset classes, cryptocurrencies require some time and attention to manage properly. By following these simple, fundamental rules, you can increase your chance of success and reduce your chance of failure