Crypto

Top rules to follow when you’re buying cryptocurrency

June 16, 2019

As the crypto winter comes to an end and stories showcasing crypto’s profitability are pouring into your newsfeed again, you may --this time-- feel your moment has come to get on board the crypto train and invest. Here’s our take on the top rules to follow when you’re buying cryptocurrency:

1. Understand the basics first and never stop reading

Take some time to prepare yourself. Read up on what cryptocurrencies and blockchain technology really are, acquaint yourself with the various types of exchanges, wallets, and coins.

The crypto space is a rapidly evolving field. Follow some trusted and popular media channels to keep track of the latest news and developments around crypto. As you grow in your understanding of the underlying technology, trends and discussions, you’ll become better at making informed decisions and spotting opportunities.  

Find an extensive list of reputable crypto news sites here.

2. Only invest what you’re prepared to lose

Whichever coin you intend to invest in, it’s best to start small and take bolder steps once you’ve become more confident in your knowledge and trading skills. Bitcoin and all the major altcoins (which tend to move with bitcoin’s price) are volatile and while you may gain a solid 20% in a single day, it is equally possible to lose what you’ve put in.

3. Think carefully about the coin (or coins) you want to buy

While you may assume that it’s more likely for a coin costing $0.005 to double in value than a $100 coin to turn to $200, this is not necessarily the case.

A lot of factors affect a coin’s pricing such as the circulating supply and the real-world value of the coin. Huge supplies often dilute a coin’s price and if such a cheap coin holds little to no practical utility, there is no reason to assume it will magically rise in value. Once again, make sure you do your research.

Read up on the coin’s background, its origins, how it fits into the larger business scheme of the supplier, and how it is perceived by the crypto community. This also means keeping track of major crypto-related events and scheduled updates (hard forks), as these tend to affect market trends.

4. Think carefully about where you will purchase crypto

You can buy crypto from strangers you meet online (although this is not recommended), at over-the-counter (OTC) desks online, at brick-and-mortar stores affiliated with Bitspark, at crypto ATMs or on an exchange.

Whatever you decide to do, be sure about the sellers reputability. This requires you to look up recent reviews, comparison sites and user ratings. If you’re going for an OTC, consider using an escrow service, so you don’t end up transferring money without ever receiving your crypto in return. If it’s on an exchange, get a sense of how easy it is to trade into other currencies, which coins they support, and what steps you need to take if you want to transfer your funds to another wallet or revert back to fiat.

Additionally, but no less important, understand what fees you’ll be paying when buying crypto (and trading it).

Read more about the differences between centralised and decentralised exchanges here.

5. Take security serious

Whoever holds the keys, controls the money. Avoid storing your keys in a wallet that isn’t fully yours. Buying crypto from a centralised exchange, and some OTCs, often means your funds are not in your custody. If the exchange gets hacked, you lose your money.

Additionally, if you’re holding anywhere above $500 in crypto, make sure you purchase a hardware wallet such as Trezor or Ledger and make it a habit of storing a larger portion of your funds in this ‘offline’ device, safe from hackers.

Apart from security considerations, when handling your crypto and transferring it to another wallet, double check the address you’re sending it to. While sending an email to the wrong address may be forgiven, transferring money to a wrong account means you’re highly unlikely to ever get it back.

Read more about how to optimise security here.

6. Buy low, sell high

As you grow your knowledge of crypto, you’ll come to judge coins on their own merits and read the market according to your own understanding. While buying when the price is low and selling when it’s high may seem like the logical thing to do, it’s really about distinguishing a hype from solid trends and seeing the larger picture.

A hype populates the market with traders motivated by a get-rich-quick mentality who jump ship by the hordes, causing markets to crash. Instead of following a hype, anticipate it or wait until it’s passed before buying in: work on the basis of vision, rather than emotion.

7. Diversify your portfolio, but don’t overtrade

Instead of choosing between frequent buying and selling or holding on to a certain coin for an extended period of time, it’d be wise to find a middle road and dedicate a portion of your investment to well-established currencies (such as bitcoin), while using another portion of your funds for more active trading.

Nevertheless, while it is wise to diversify your portfolio, it is not advised to ‘overtrade’, continuously moving into other currencies driven by anxiety when trading volumes get low. When trading, make sure to place orders when there is sufficient liquidity, and don’t forget that transaction fees and endless efforts to recover losses ultimately do take their toll.

More on cryptocurrencies:

Beginners Guide To Sending Money With Bitcoin And Stablecoins

Advanced Tips For Crypto Traders: Optimising Security

Why Bitshares Is The Most Underrated Blockchain In The Ecosystem

Make sure to follow and share Bitspark’s journey on Twitter or Linkedin.

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