Exercise prudence and adhere to the fundamental principles of investing. Failing to follow these fundamental, common-sense guidelines has led to significant losses for some individuals. The key principles to consider are outlined below:
First Priority:
Invest in cryptocurrencies using discretionary funds exclusively. The money used to purchase cryptocurrencies like Bitcoin or Ethereum should be funds you can afford to lose entirely. It should be money designated for personal use. Just as you wouldn’t use your retirement savings to gamble at the racetrack or casino, you should approach cryptocurrency investment similarly. It’s highly volatile. The most important rule is to only invest money in cryptocurrencies that you can afford to lose, without impacting your financial stability for other needs.
What constitutes discretionary spending money?
This varies for each individual based on their priorities and circumstances. One person might consider money set aside for a vacation to be discretionary spending, while another individual may prefer not to risk that money on Bitcoin.
Second Point:
Assess the risks. As with any investment, conducting a risk assessment is crucial. It’s common knowledge that Bitcoin can experience significant fluctuations, but if you follow the first rule, even in the event of a cryptocurrency market downturn, your overall financial situation should remain relatively stable. In some countries, market volatility isn’t the only risk investors face. For example, China imposed a blanket ban on all cryptocurrency transactions to eliminate everything related to cryptocurrencies.
The third item:
Avoid succumbing to greed. Greed can cloud the judgment of many investors. They might decide to invest more money into Bitcoin using funds they shouldn’t because they see their Bitcoin’s value skyrocketing. While having exposure to the cryptocurrency market is exciting, it’s unwise to attempt to get rich quickly by putting all your money into Bitcoin and neglecting other investment options.
Fourth Point:
Diversify and spread your risk to reduce the likelihood of a catastrophic loss. During the Global Financial Crisis of 2008, many investors suffered a single major financial blow when businesses in which they had invested their entire life savings failed, resulting in the loss of all their funds. They had placed all their money into one venture.
What does this have to do with investing in Bitcoin? Since the risk of hacking exists with Bitcoin, spreading your investments across multiple platforms can mitigate this risk.
Fifth Point:
Utilize various platforms since the risk of hacking could result in the disappearance of your cryptocurrency. It’s wise to invest your cryptocurrency across multiple platforms, such as Blockchain, Finance, and Block, to name a few. This way, if one of these platforms is hacked, you won’t lose everything simultaneously.
Sixth Point:
This is crucial because many cryptocurrency trading websites allow only one incorrect password attempt before locking you out of the site permanently. In the crypto-market, there are potential pitfalls, but with careful planning, you can mitigate the risks.
