New altcoins regularly pop up on the market, anything from coins that operate faster than their predecessor to video game currencies, even extending as far as gold-backed stablecoins. Therefore, regardless if you are a new or knowledgeable investor, it will be to your benefit to stay in the know of market events to see what projects are coming down the pipeline. Many of these projects have proven to be profitable investments, with gains that may be 100x, 1000x, or more.
But, before you jump into the altcoin market in full swing, there are a couple of tips that will ensure you are making the most of your money.
Only invest what you are willing to lose
As is true with any other digital asset investment, some risks are involved when engaging in a trade. Namely, there is a chance the investment you make may be into a dishonest company or that the company’s long-term objectives don’t pan out. For these reasons, investors do well to avoid investing their entire retirement funds into a single project. Given the volatility of some altcoins, there is always a chance all will be lost. Therefore, investors should start with small, affordable investments that they are okay to lose.
A rule of thumb investors may keep in mind is “avoid purchasing any altcoins until a solid emergency fund exists.” Savings (separate from your altcoin investments) should cover between 3 and 6 months of expenses. At no point should an investor dip into these funds to invest in speculative assets, like altcoins.
Invest diversely
The best inventors aren’t lucky; they are strategic. Smart investors know that cryptocurrency prices will go up and down, and sometimes they won’t recover. Therefore, investors will use a similar strategy to the stock exchange and diversify their portfolios with several different assets such as some gold-backed cryptocurrency, bitcoin or other token projects. As the famous investment saying goes, “you don’t want all your eggs in one basket,” so selecting many projects with diverse offerings will help to eliminate some of the marketplace uncertainty while maximizing upside potential.
Be aware of pump and dump schemes
The thought of making “quick money” is often too much for any investor to pass up. As a result, the altcoin market is not immune to greed, which will occasionally bring out manipulation. Among the most common is what is known as a pump-and-dumb scheme, which attempts to boost the price of a stock or security with fake recommendations that may be false, misleading, or even grossly exaggerated. Those making the false claims often already have large holdings in the company and are waiting for several other investors to buy in and drive up the asset price so they can sell at a profit. The best way to avoid a pump and dump scheme is to do thorough research on a project ahead of time to ensure the project is legitimate and has promising plans for the future. Secondly, market analysts will always caution investors to avoid “buying rumors” by choosing not to pay attention to these schemes.
Do Your Own Research
Many investors may find it tempting to copy what someone else in the market is doing. However, it is important to note that altcoins aren’t like other stocks and securities. The difference is that they are much more speculative. Before making a purchase, investors should do their own research on the project, including whether a third party has audited or otherwise reviewed the underlying code of an altcoin that you may be considering purchasing. Audits often determine if there are any issues in a digital coin’s development. An example of this might be if any central party has total control over the network or its funds.
Almost every coin has a detailed whitepaper outlining the team, their goals, and any other important detail you can think of. The project’s official whitepaper combined with up-to-date news will give investors a pretty good idea of the team’s future plans.
Hold On for Dear Life
Last but not least, users should always consider a long-term hold approach when investing in altcoins. The theory behind this approach is that hasty decisions often lead to selling or buying at a less than advantageous price. By holding an asset long-term, many believe that you can wait out the volatility and turbulence in the market. As crypto’s track records continue to expand, investors can become more confident in the market’s history of growth.
Investing Now and Into the Future
The bottom line is altcoins are excellent alternatives to bitcoin and traditional markets and provide investors with an often advantageous opportunity to diversify their portfolio. Each altcoin represents the vast potential of this market to reshape finance as we know it and may provide investors with a healthy profit as a result.
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