It is more than likely that you are aware of the huge amounts of money that many people have made by investing in Bitcoin. When it was launched in 2010, very few people were able to appreciate its potential value. It was only in December 2013 that it experienced its first surge in value. Then, in 2017, its value exploded when it reached a historic high of $19,891 per piece in December. For those who had kept the coins from the beginning when they were only worth $0.008, these last 7 years must have brought them a rather significant benefit!
This is every investor’s dream. In fact, almost no other cryptocurrency is likely to achieve this level of return on investment. This does not mean that with careful investigation, you could not make a lucrative profit by investing in cryptocurrency. You should be aware that this is a highly volatile market that is subject not only to incredible increases, but also to incredible decreases.
As we saw earlier in Chapter 5, cryptocurrency are not the most interesting or important part. It is the features on which they are based that must be the subject of your research if you want to give yourself the best chance of making a good choice.
In addition to conducting your own research, there is much to learn from the latest news and discussions on the Internet. However, there are some aspects that should not be overlooked. First, make sure that the information you are reading is up to date. This is a very fast market. Also remember to check that your sources of information are reliable and that they come from a reliable supplier.
Finding a winner
Most cryptocurrency have no chance of making anyone win a considerable amount of money. Before investing money in a cryptocurrency, it is absolutely essential that you start by conducting your research through a thorough audit. Here are the aspects to which you should pay attention:
Objective: Discover what idea this cryptocurrency is based on. What ideas does it include and will these ideas be beneficial in the wider market? Are their ideas marketable and will they be unique? The stronger the objective of a cryptocurrency, the more likely it is to succeed. You will be able to discover most of this information by consulting the website and reading the white paper of the cryptocurrency concerned.
Team: Does cryptocurrency rely on a strong professional team to develop the project? What is the team’s background and level of involvement? Has the team been assembled for a long time or has it been formed recently? In addition to professionals from the fields of cryptography, finance and computer science, also look for whether some of the team members have developed skills in cryptocurrency, which is the main objective as indicated above. Much of this information should also be available on the websites of the relevant currencies.
However, you can also do your research on team members by searching them separately and consulting the other projects in which they have participated. Also, each team often surrounds itself with advisors who can help it achieve its objectives by using their knowledge or networks.
Market: The verification of cryptocurrency consists of observing much more detail than its current price and its increase or decrease. In addition, a currency that has recently lost value can sometimes be a good investment. All you have to do is try to find out the origin of this drop. For this purpose, it may be relevant to consult the discussions on the currency concerned on the Internet or to read the news articles available on the subject.
In addition, be sure to check its market capitalization: it reflects the amount of currency ($, £, €) that this cryptocurrency represents. If you observe two different cryptocurrencies with the same market capitalization, the one with a lower unit price is generally a better investment.
Long term: It has been shown that trading patiently can be much more profitable than short-term trading when it comes to cryptocurrencyy. When I talk about the long term, it should be noted that it only took Bitcoin 7 years to reach extraordinary values, while the Ethereum is developing even faster. The long term that will allow you to obtain a good return on your investment is therefore not a particularly long period.
However, this is the important point I wanted to make. Cryptocurrency are very volatile; they undergo large fluctuations in values. If you want to give yourself the best chance of making your investment profitable, you must be brave enough to face a few storms.
If you have done your research correctly, then you should have enough confidence in your cryptocurrency to believe that it will be fine in the long term. As the cryptocurrency market matures, it is also possible that it will slow down: investments may therefore take longer to increase significantly.
Discussions: Keeping an attentive ear and listening to rumours in general is a good way to distinguish between interesting offers in the market and those that are not. You will always find killjoys announcing the next disaster. Try to cross-reference the discussions with your own research in order to make your own decisions based on the facts you know. That’s the game: sometimes you win, sometimes you lose. Nothing is guaranteed. Preparing your homework should help you minimize losses and maximize gains.
Exchange/Broker: Finding the right exchange or a reliable broker is always a difficult task. Here, research is of the utmost importance. Recently, we have seen a number of exchanges that previously had a good reputation sink into pretension and become totally untrustworthy. To be fair to them, it is sometimes not entirely their fault. The problems often lie in the fact that the sector is growing at such a rapid pace that their infrastructure simply cannot cope with all the demands they receive. Even the most important and well-known exchanges such as Coinbase have experienced these kinds of difficulties.
Read the comments of people who have used the exchanges, observe what is said about them. They are also a prime target for hackers: many exchanges have been hacked. Be careful, because you are never safe from danger. If you wish to use the services of a broker, again exercise extreme caution. Many of them are only there to make easy money without giving anything in return. At the end of this book you will find some trusted addresses.
Portfolio: Be sure to consult and apply the advice provided in the previous chapter on portfolios. You must use a portfolio adapted to the currency in which you invest. You should choose a portfolio that is as secure as possible based on your personal situation. Remember that if you lose your information in a portfolio, you also lose your money.
What is the difference between investment and trading?
Investing means acquiring cryptocurrency and keeping it for an extended period of time. It is to allow it to rise and fall naturally in value, with the aim of making it significantly more valuable than when you acquired it.
Trading corresponds to the acquisition of cryptocurrency and the attempt to cash gains on its value in the very short term while avoiding any decline. The potential benefits with trading are (generally) much lower than if you opted for a long-term investment. However, if you are serious about trading and are lucky enough, you may make a reasonable profit. In order to succeed in trading, it is necessary to buy when the price is low and sell once the price has increased to the profit margin you desire.
Some common mistakes and how to avoid them
I have listed below some of the most common mistakes made by the general public. Make a note of it so that you don’t get caught off guard.
- Research: I have talked about this a lot and I cannot stress enough the importance of conducting comprehensive and in-depth research.
- Loss of your keys: The loss of your house keys always has terrible consequences, doesn’t it? Well, know that if you lose the keys to your cryptocurrency-that is, the codes that relate to any cryptocurrency-you have purchased, then you will have lost that money forever. Make sure you have a secure wallet, make backups and make sure you don’t lose your keys or your money will go up in smoke.
- Bad wallet: Remember that cryptocurrencies should be kept in wallets designed especially for them. Make sure your wallet is compatible with your cryptocurrency. If you put Bitcoins in a wallet for Ethereum, you’ll have lost your change. This reasoning applies to all cryptomonal currencies.
- Community: The cryptocurrency community is large. Joining groups and consulting their opinions will provide you with a wealth of valuable information. Keep an eye on the discussion forums to keep up to date with the latest information. These resources can save you costly mistakes.
- Exchanges: Do some real research on exchanges before you decide to use them. So many people have lost large amounts of money because their exchange failed to complete a transaction successfully. Don’t let yourself be ripped off.
Finally, remember that when it comes to investing, “fortune smiles on the bold”. Don’t be tempted to sell too early and don’t be afraid of slowdowns. Have confidence in your research.