Let me start with a disclaimer: I am not a financial advisor and this is not meant to be financial advice. I'm purely sharing my personal opinion. Before you invest any money, check with a professional and be aware of the risk that you can always lose everything you invest.
If you haven't yet invested in crypto, chances are you've thought about it (maybe after one of your friends told you how much money they've made with it :). The bottom line is: you can treat cryptocurrencies (and NFTs) just like any other asset class, and you can make or lose a lot of money with it.
Before you think about investing, make sure you are financially stable (we cover the basics in our article Personal Finance 101) and are aware of some general guidelines for investing (review my rules in the article Investing 101). If you need an introduction to cryptocurrency first, check out our Starters Guide to Cryptocurrency.
The first question: Should I buy Bitcoin?
I've heard a few people say that at this point, it’s riskier not to own any BTC than to own (at least a small amount of) BTC. The value of BTC is fairly volatile still, but it is expected to stabilize more and more as the market matures. In addition, you can expect a fairly dramatic price increase with every Bitcoin halving, every 4 years. So the likelihood that BTC increases in value is fairly big. Therefore, it's better to invest a little bit in BTC than not to invest anything.
The key is to first inform yourself well, and then decide what amount of risk you feel comfortable with.
Rule #1: DYOR (= Do Your Own Research)
That's right - I'm writing this article to tell you not to listen to me. Instead, go ahead and do your own research, make up your mind and then do what you feel comfortable with. And that might even mean not investing in crypto at all.
The best way to do your research depends on the way you prefer to learn - this might be through podcasts, Youtube videos, articles, books or plain trial & error. At the end of this article, I have compiled a list of my favorite Youtube channels and videos I've come across while doing my own research.
But before you throw your money at crypto, let's go over the technical set-up of how this whole crypto marketplace works.
How to Buy Crypto. Literally.
Let's start simple: first of all you need money, and an online bank account. Then you sign up at a crypto exchange platform of your choice (get a recommendation from friends who are already investing, or do your own research of the exchanges with the best conditions in your country), get verified on the platform and transfer money from your bank account to your crypto exchange account.
Once the money arrives in the account, you can technically buy your first cryptocurrencies. Make sure you inform yourself about the fees you pay for each transaction (when you buy crypto, a small portion of your investment goes to fees for the exchange platform). When you receive your crypto, you have two options for storing it:
In a hot wallet = an online wallet, meaning the website of a provider who stores your cryptocurrency for you, like the crypto exchange.
In a cold wallet = an offline wallet, meaning a physical device (similar to a USB stick), which stores your cryptocurrency offline. With this option, you can only access your crypto by plugging this device into a computer and entering the correct passwords. It cannot be hacked since it is not connected to the internet, but there is a risk of losing the device or passwords, without which you cannot access your cryptocurrencies.
There are risks to both of these options, so decide for the one you feel more comfortable with, or even combine both options by splitting your crypto between both. Check out the videos I added at the end of this article for a comparison of both storing options.
If you've decided to go for investing in crypto, there are a few more things you should consider before making your first move. Apart from rule #1 (DYOR), here are some other guidelines I have established for my own investing:
Bet on the safer horses. If you are just starting to invest, it's wise to stick to the most widely known currencies, which are also relatively stable, compared to the new ones. There are a lot of scam projects out there, so always make sure to know who and what you're investing in. It has happened before that a group of people set up and advertised a fake crypto project, collected money to launch it and then took off with the money without any intention of actually launching the project. And the investors never saw their money again. There is also the risk of 'pump and dumps': for instance influencers announcing the next big 'moonshot' coin they tell you to invest in, then the price shoots up in value (if the influencer has enough followers), after which they dump (sell) all their assets and make a lot of money off of it. After this dump, the price goes down again and lots of the followers have lost money if they don't sell quickly enough.
Invest in projects you believe in. If you're using your money to support technologies or projects you are convinced of (after doing thorough research) and want to see flourish, it can be easier to sit through dips without getting nervous and wanting to sell. Be careful with altcoins that are not providing any sort of value. These are highly volatile, so it’s better to invest into altcoins that provide a service or some kind of value.
HODL! (= hold on for dear life) If you're trying to make quick gains, the likelihood to lose money is bigger than if you're in it for the long haul. I generally invest over a timeframe of years, meaning I don't plan on selling within months of buying assets, so I also don't get nervous if a cryptocurrency I invested in is going through a dip. I suppose that over a horizon of multiple years, it will probably increase in value. The motto is Diamond Hands! (As opposed to Weak Hands or Paper Hands, meaning selling assets as soon as they go down in value because you're scared of losing money) If you DYOR and did it well, you should be confident enough to hold the assets even through a temporary dip.
No FOMO: If you miss one train, take the next. Especially in periods of crypto hype, it's easy to feel like there is a new moonshot coin every week, and you missed a big chance because you didn't invest in a coin that just went up in price. But I'm telling you: there is always a next train, so don't jump on a moving train, but stay calm and take the next one. Making quick moves because you're scared of missing out is risky and might have you losing money in the end.
Don't buy the FUD. FUD stands for fear, uncertainty, doubt, which is a common theme in the crypto space. Since the space is still relatively young and volatile, it's easy to make people feel insecure with a flashy headline. If a big entrepreneur says something negative about crypto, it can make a lot of people nervous and get them to sell their coins. However, this only happens to the ones who didn't know what they invested in in the first place, and only bought their crypto because they heard it will be "the next best thing". Again, DYOR and invest in the projects you believe in, and you won't get nervous by a tweet of some celebrity.
Consider the rest of the investing rules from our article Investing 101.
My favorite Youtube channels on (crypto) investing:
Blocktrainer (German)
Bitcoin Trading DE (German)
Hopf-Klinkmüller Capital Management (German channel with the best dry humor)
Good videos to start with:
Disclaimer:
I am not an expert, I just researched this topic from a place of personal interest. If I used incorrect terminology or expressed something incorrectly, please feel free to let me know.
Other sources: