Digital currencies can be an excellent way of investment and portfolio diversification. With many altcoin cryptocurrencies in the market, deciding on the best may be challenging. Experienced traders have been inquiring and trading for a long time. But what if you’re fresh in the market and would like to get a piece of the cake? Here’s a how-to on altcoin investment.
What is Altcoin Investment?
Altcoin investment refers to investing in cryptocurrencies other than Bitcoin. Like Bitcoin, altcoin operates using blockchain technology. Blockchain technology is a digital and decentralized public ledger that is securely shared, enabling participants worldwide to share data. Since blockchain has cloud services, it’s easy to collect, share, and integrate transactional data from various sources. The transactional data is broken into shared blocks that are joined together with unique codes, forming cryptographic hashes. Blockchain is considered safe as it doesn’t allow data duplication or alteration without a quorum of the parties’ permission.
There are many types of altcoins out there. Altcoins creators strive to develop crypto coins better than Bitcoin by offering unique features. For example, Litecoin, which has the same purpose as Bitcoin and began as a Bitcoin blockchain clone, has faster transaction speed and improved storage. On the other hand, Ethereum enables recording agreements in “smart contracts” form, which may uplift industries depending on middlemen like banking, insurance, and copyright management. Other altcoins, stable coins, utility tokens, meme coins, forks, governance, and security tokens are more secure, scalable, faster, and decentralized.
What to Consider Before Altcoin Investment
- Reason for Investment
Why do you want to invest in altcoins? As a potential investor, that should be the first thing to ask yourself. Do you aim to get rich fast, or is it a long-term investment? If you think altcoin investment is a get-rich-quick scheme, you are wrong and need to reconsider other investments. But if you feel you have the zeal, patience, and grit to wait for long before eating your fruits, this may be good for you. Altcoin investment takes time before you can gather anything tangible from it. So, take this route only if you know you have the psyche of waiting and the psychology of grit.
- Price Volatility
For altcoin investment, timing is everything since digital assets are exceedingly volatile. Altcoin prices can drop quickly in the split of a second only to go up the next minute. This volatility may be significant for experienced investors as they have an in-depth knowledge of the market’s fundamentals and current and future trends. But with new investors, it would take them time before grasping all this.
So, if you’re relatively new to altcoin investment, take time to understand and watch price volatility. In this case, you may need to ask yourself questions like, how are the current Ethereum prices? When will litecoin reach $1000? How is Dogecoin prices fairing in the cryptocurrency market compared to other altcoins? Finding the most suitable time to invest in altcoin means buying altcoin when the prices fall and selling them when it rises. So, remember not to rush into investing before understanding the current price volatility. Doing so would save you lots of losses and increase your chance of success.
As with anything, you need to have a solid understanding before buying. How much do you know about altcoins? There are many altcoins out there, with new ones created each day. Take your time and research extensively on the altcoin you’d like to invest in. Read the altcoin’s white paper well and learn everything about it, including an overview, project specifics, developers, and time frame. The white paper should tell you everything about the altcoin you have in mind. And if some details are missing, or the white paper seems incomplete or misleading, that’s a red flag, and you should reconsider your decision.
Besides the white paper, finding out about the developers’ background is also critical. Ensure the developers have reliable credentials and have worked on other successful projects before (check their websites and LinkedIn pages). This way, you’ll know their background and whether to trust them or not. You can compare and find crypto exchanges with which you can invest in altcoins here.
- Risk Management
Trading in volatile assets like cryptocurrency requires a risk management plan, especially for new traders. A risk management plan is simply a way of mitigating losses should they occur. Anyone can develop their strategies, and they don’t have to resemble each other.
An experienced investor, for example, may plan not to sell, irrespective of the price, allowing them to stick in their positions. On the other hand, entry-level traders may choose to sell only when the prices have fallen by 10%. Remember to have some backup amount for trading in case you lose money.
- Invest What You Can Afford to Lose
Investing in altcoins doesn’t guarantee success. It’s possible to lose cash and lots of it at that. So, don’t invest with money that you need in other projects. If you can’t afford to lose all the money you’re investing in, you can’t afford to invest it in risky assets like cryptocurrency. It doesn’t matter what the money’s for, whether a deposit for a car or purchasing a house. The money you’ll need in the coming years should not be touched so that its’ there when needed. And if you want a sure return, pay off debt. You’ll be sure of earning/saving in the debt interest rate.
- Be Cautious
Scammers are everywhere. So, be cautious of all your moves. Social media can be deceiving, and not everything you see there is to be taken at face value. Some people may be out there to make money at your expense. Others can lure you into crypto assets by promising huge returns or exaggerating the future prices of altcoins. In short, people can go to extreme lengths or do whatever it takes to make money in the crypto world. So, don’t fall into the statistics. Do your due diligence before jumping into any bandwagon you come across.
Altcoins are not going anywhere anytime soon. So, there’s no reason to rush into its investment. As with anything, take time and learn everything about it, the dynamics, risks, price volatility, and market trends, before deciding it’s what you want to do. Once you make up your mind, remember to start small and invest what you can only afford to lose.