How to avoid big losses when investing in cryptocurrencies

How to avoid big losses when investing in cryptocurrencies

After being involved in the cryptocurrency world for quite some time now, there’s one thing clear to me: This is not for those who can’t keep their cool in the face of adversity.

Just like many other enthusiasts of this growing and revolutionary crypto industry, I was thrilled to see Bitcoin and other digital coins soar at the end of 2017. But I was also aware that this growth levels were unsustainable in such a young and volatile market.

And so it was. Just a few weeks later, the prices of the main cryptocurrencies plunged to losses between 50 and 70 percent. However, these digital assets have bounced back ever since.

Bitcoin reached almost the $20.000 USD mark in mid-December, but then plunged below $6,000 in early February; however, this Tuesday was operating around $12.000. Believers in this new economy weren’t worried, but instead they seized the momentum to purchase more assets and in just three weeks have doubled their investment.

Nonetheless, there are also those who bought digital coins at their peak in December, and despite the recent recovery, have yet to get back their investment.

Such violent swings have triggered a new set of warnings about the risk of investing in digital assets, and even some comparisons to gambling.

The comparisons between altcoin investments and gambling are based on the lack of understanding about what cryptography really is, and the ambiguity about what constitutes its value.

Cryptocurrencies are very risky, but that doesn’t mean they are not worth considering as an investment. So, how can you minimize the risks and profit from this economic revolution?

First, we should not stop researching about it. Cryptocurrencies are different from traditional assets, but that’s not a reason not to study them. You must evaluate each currency before investing, make sure to know what the potential market is, what sets them apart from other similar assets, who backs them and what factors can harm their price.

If you don’t know enough about this, you can subscribe to different cryptocurrency-related channels, like www.bitsfinancenews.com, so you can make informed decisions.

Second, you can´t be carried away by your emotions. The cryptocurrency market operates on a 24/7 basis, which makes it harder not to panic into an emotional sell every time you “feel” you can lose your investment.

Cryptocurrency investors MUST be prepared to endure the huge market fluctuations. Having an investment strategy is a good way to avoid getting the worst of your emotions, just like you do with traditional investments.

Another tip is to avoid “putting all your eggs in one basket”. There were cases of people who invested when Bitcoin was at its peak, and even mortgaged their homes. Many of them lost a huge chunk of money over those weeks between January and the beginning of February.

But let’s be clear: The problem is not the cryptocurrencies themselves, but the failure to allocate across different digital assets, because up to this day there is no way to know which ones will still be operating going forward. The best thing to do is to buy a little of a lot. Thus, it is likely that the profits made by one cryptocurrency winner has the potential to far outweigh the cost of several losers.

And finally, the mother of all rules: Do NOT invest the money you don’t have. Is too easy to get carried away by the temptation of huge profits, but as we have learned in recent weeks, everything can change in the blink of an eye.

 

By Alejandro Cortés

  • Alejandro Cortés

    Alejandro Cortés

    Egresado de la Escuela Mexicana de Periodismo Carlos Septién García. Ha trabajado para varios periódicos en México y los Estados Unidos desde 2002.

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