Rules for Investing in the Cryptocurrency Market



The cryptocurrency space is worth more than a 2 trillion dollar market cap today. From less than $400B market cap a year ago, that’s almost a 5x increase with the two largest cryptocurrencies, Bitcoin and Ethereum, giving more than 20x returns on investment.

We are in the midst of the biggest cryptocurrency bull run of the decade with a much larger institutional adoption.

This is nothing short of euphoria, with plenty of alt-coins almost doubling every week or two. Naturally, there’s a huge influx of retail investors who’re looking to join the rollercoaster.

I’ve been a part of the mad bull run of 2017 that was followed by a 2-year bear market cycle. Admittedly, I’d bought the top of some cryptocurrencies at that time just to see my savings dwindle by more than 50 percent thereafter.

However, losses teach us the most valuable lessons, and I must say the crypto market crash of 2017 taught me more than 4 years of university ever did.

Now, you could be a crypto newbie or a veteran investor. Regardless, the following investing tips should help you make wise decisions.

“If I bought Bitcoin in 2015, I would be super-rich today.”

“I wish I invested more in Dogecoin earlier.”

“Okay, let me dump money in the other possible 10x coins next.”

This is the kind of mindset that people who’re chasing pumps have. More often than not, they’re simply looking for a get-rich-quick scheme, and their decisions are typically based on emotions — FOMO as we popularly call it.

It’s important not to diss yourself over missing the previous rallies. Nobody could’ve predicted the current meteoric rise of any coin. We only see and discuss things in hindsight.

OK, seeing coins pump up by over 1000% in less than a year can make anyone feel regretful for missing those opportunities. However, truth be told, most of us would probably have sold those coin way before their current market price.

Besides, even if you do pick the next big coin, you probably aren’t gonna make potentially life-changing amounts.

Only seasoned investors and people who’re in the top 1% make a ton of money by chasing pumps. The rest of us end up in the waterfall that eventually follows.

Personally, I learned this the harder way(by chasing the top of XRP in 2017). Today I’ve finally reached the point of realization to advice: You aren’t gonna catch every mega rally. Right now, every damn altcoin has been through parabolic hype pumps. Accept the fact that you’re gonna miss out on a lot of waves — and that’s okay.

A few ways to avoid chasing pumps is by not letting your FOMO drive the investment decisions, learning from the past trends, and sticking with solid projects.

If I had just held on to the top projects I originally planned to invest in 2017, I would have been in a lot better space today. But again, it could have gone either way. Fear of missing out is an extremely dangerous emotion, and it can give rise to poor investment decisions.

#2 — Don’t margin trade. Liquidation can really hit you

A lot of crypto exchanges today offer leverage trading. This means you can borrow money that is 3x, 5x, 10x times your initial deposit and chase bigger gains.

While leverage trading isn’t inherently that bad, when you over-leverage and things go the opposite direction, it can turn pretty ugly.

This is one of the common mistakes that newbies, especially students, make with their education loans. It might make them a good buck initially, but then they start getting too greedy. Subsequently, they over-leverage their positions and run the risk of getting margin called.

Unless you’re living under a rock, you would have probably heard of the recent Bitcoin flash crashes. That single event caused over $10b long positions to get liquidated.

As someone who’s done margin trading a bit, I can vouch that the fear of that dreaded margin call and losing everything always stays in the head.

Seeing your portfolio go down to zero is a shitty feeling and can really affect you.

Margin trading can lead to amazing gains, but all it takes is one wrong trade to lose everything. Even if you’re confident, the market can surprise you. Nobody can game the market, and only the brokers make sure-shot money from leveraged positions.

Hence invest only your own money, which you can afford to lose.

One of the main reasons Bitcoin has boomed in the past year is due to its deflationary nature. With the Fed government relentlessly printing money, the fear of inflation started looming.

Yet, Bitcoin or other coins for that matter, won’t have green days forever. If the previous bull runs teach us anything, there’s always a bear market that follows.

So, don’t beat yourself up for taking profits from time to time. There’s no safe long-term investment, and fiat currency isn’t going away anytime soon.

Booking profits is the only way to realize the money you’ve made. There have been instances in the past where I’ve seen 2x or 3x unrealized gains only to see them dump eventually. Ideally, pulling your initial amount at those stages is a good idea to preserve wealth.

Alright, even if you’re against fiat and believe crypto is the future, taking profits is a good way to increase your buying power to reinvest in the next dip. Even better, it helps us in rebalancing the portfolio.

Though one should always have a plan for selling profits. For instance, selling all the coins at once might not be the best strategy as you could regret missing out on potential upside in the future. Instead, using the dollar cost averaging technique to sell partial profits on the way up might be a wiser idea.

Only recently, one of my old mentors wanted a crypto recommendation. I gave it; he bought it immediately only to see it fall by 10 percent the next day. He messaged me: “See what you did.”

Though it was all in good humor as it was his decision, and he very sportingly took it in stride: Another day, someone else might have put all the blame on me. Or worse, asked me for a refund?

So, I’ll always recommend not to share any informal investment advice. It’s okay to talk about the technology but never persuade someone to buy a coin. Friends and money are a combination that never works. In fact, it’s the best way to burn bridges.

Similarly, stop relying on the advice of others before buying a cryptocurrency. Today, there are over a dozen YouTube channels, Discord, and Telegram, that are flooded with recommendations. It doesn’t take a Sherlock to decipher why. Most of them are promoting the coins they bought and have financial interests at stake.

It’s always better to do your own research to know what you’re getting into. For starters, know the difference between a coin and a token. Understand the tokenomics and gas fees of different networks.

For specific coins, look up the website, devs, and their track record. Try playing with their projects. Most importantly, find out the adoption rate of that cryptocurrency and its potential competitors.

Doing your own research not only helps in building a conviction but also ensures you have a good knowledge of where you’re jumping in.

#5 — Always have cash on hand

A few weeks back, the cryptocurrency market saw a huge correction. My portfolio was quick to shed off all the gains it made.

I was happy to buy the dip, however, there were a few roadblocks: The price of the Tether(USDT) coin considerably increased. Besides, the fiat currency deposits on my exchange weren’t reflecting immediately. There were huge delays. Putting two and two together, it was obvious that a lot of people were looking to buy the dip, which overwhelmed the bank deposit system.

By the time I could start thinking of buying the dip, it was over. I missed the train and the only mistake was: No cash in hand.

I cannot stress how important it is to keep cash in hand on your crypto exchanges. As much as some people may trash about timing the market or the inflating dollar currency, it plays a crucial role in big rallies.

Having cash on hand is the only form of security and this is paramount during catastrophic times or for buying the dips.

The crypto game is no different from the stock market. Greed and emotions both go hand in hand and the one who keeps them in check and plays patiently ends up on the winning side.

It’s a fact that the greatest lessons we learn in life come at the expense of our wallet. So, it’s crucial to not get ahead of ourselves and use this rare bull market cycle as an opportunity to learn managing money and risk.

Author: Anupam Chugh