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10 Crucial Lessons You Can Learn By Investing in Crypto
Published 2:30 pm Thursday, August 15, 2024
Investing in crypto is an activity that has one unexpected yield. Namely, while you may win or lose money this way, it is inevitable that it’s an experience that will teach you some life-lessons. Some of these lessons you’ll be able to transfer to other fields of your life, and probably even use when investing in other asset types. With that in mind, here are ten such crucial lessons that you’ll be able to learn by investing in crypto.
Research and Due Diligence
Investing in crypto requires thorough research. So, by investing in crypto (the right way), you’ll learn how to do proper research.
You should never underestimate how much reading goes into this research. It involves you learning to evaluate projects, teams, and whitepapers. This will help you in making informed decisions.
The reason why you have to look for these primary sources is because, when it comes to every new cryptocurrency listed on exchanges, you won’t have much else to go by. On the one hand, you want to be an early adopter, but at the same time, this means making your own evaluation instead of having dozens of reviews and testimonials to analyze.
Volatility Awareness
Crypto markets are highly volatile. You need to understand that cryptocurrencies are still a relatively new asset and while they do have more users than ever before, the market is still smaller (has fewer actors) than any other asset type. This means that shifts are easier than anywhere else.
Understanding and managing the emotional and financial impact of rapid price changes is crucial.
The most important thing is that you learn how to avoid making irrational decisions. You see, if it’s just about the risk, you can go to one of those anonymous casinos and try your luck. Volatility can be incredibly expensive if you don’t approach it the right way. Speaking of which…
Risk Management:
If someone told you that if you give them $100, there’s a 50% chance that you’ll get $110, you wouldn’t even consider engaging in such a risk. However, if they told you that if you give them $10, there’s a 10% chance that you’ll get $1,000, you probably would. What you did there without even understanding it, is some quick, rudimentary risk assessment.
This is a crucial part of an action known as risk management and you should do it every time before you trade with crypto.
You never know where the stock is going, but there’s so much you can do to ensure that, no matter what happens, you still have a safety net. For instance, diversifying your investments and setting stop-loss orders are essential strategies to minimize potential losses.
Security Practices
Cryptocurrencies are not like gold coins that you can put in a backpack and bury in your backyard or even cash that you can withdraw from the bank and put in a safe in your backroom. No, they’re always in your crypto wallet and accessible through your digital devices.
The importance of securing your investments with hardware wallets, strong passwords, and two-factor authentication (2FA) becomes clear when it comes to cryptocurrencies. This is especially the case since you could hold considerable assets in cryptocurrencies, which means that the stakes would be high.
To make the long story short, investing in cryptocurrencies can make you care about proper cybersecurity practices like never before.
Market Timing
Timing the market is challenging. Most people fantasize about buying a coin at $1 and selling it at $67K (like Bitcoin), but the reality is that if they did buy at $1, they would sell at $2 or $10, or (if they’re really, really patient) at $100.
Timing the market is impossible, but being a bit steadier is generally a good idea.
Learning the value of long-term holding (HODLing) versus attempting to time peaks and troughs can shape your investment strategy.
The most important thing is that you understand that your guess is just as good as anyone else’s and that no matter how clear the signs appear, you can never “know.”
Regulatory Awareness
Keeping up with regulatory changes and understanding their implications on your investments is vital for compliance and risk assessment. You see, cryptocurrencies are a relatively new field, which means that the regulation is yet to be settled.
In other words, you’re not just working against bad regulations. You’re working against incoming regulations, and you have no idea how they would turn out. This gives you another important political issue to look out for. It gives you one more reason to follow the news for.
Technological Proficiency
Investing in crypto can enhance your understanding of blockchain technology, smart contracts, and decentralized finance (DeFi) systems. This is not just because these technologies are related to crypto but because developments in these fields may actually increase the value of the crypto you’re investing in. In other words, you get a reason to be more invested in these technologies.
Even from the very start, in order to buy crypto, you’ll have to develop a few skills and learn how to do a few new things. Just by starting a crypto wallet and figuring out how crypto exchanges work, you’ll already be ahead of a lot of your competition.
Patience and Discipline
The ability to remain patient and disciplined during market fluctuations is a critical skill for successful investing. This is more difficult than you think, especially when the market starts behaving in an increasingly unfavorable manner.
Being disciplined while investing is not unlike being disciplined when it comes to keeping a strict diet. Both are good for you in the long run, but the craving to do something about it immediately will be anxiety-inducing.
Community Engagement
Engaging with crypto communities on social media forums and attending events can provide valuable insights and networking opportunities. If you doubt this, just try to remember the WallStreetBets and GameStop controversy. We’re talking about a lot of people who coordinated a market short on a subreddit.
There are so many subreddits, Telegram groups, and more communities where you can be one of the first to figure out what’s going on. Staying informed and even getting some invaluable tips will happen organically in these spaces. You just have to stay patient and keep interacting even when it seems like there’s no point in it.
Economic Principles
Lastly, investing in crypto can deepen your understanding of economic concepts like supply and demand, inflation, and monetary policy as they relate to digital currencies.
Cryptocurrencies act like all the other assets. They’re no different than stocks, options, or even real estate.
By investing in crypto the right way, you’ll learn skills and principles that will benefit you in all other forms of investments. When you become good enough at investing in crypto, you’ll have no trouble transitioning into being an investor in other types of assets.
You learn best from your own experience
One of the most important things you need to understand is that you never learn as efficiently as when you have some skin in the game. A mistake when investing is an expensive affair, which is why every failure will be etched into your mind, and you won’t be as likely to repeat the same mistake twice. This is what makes investing in crypto a great learning experience.