Getting started with crypto investing is as easy as purchasing your first bitcoin (BTC), ether (ETH), or any other cryptocurrency. The tricky part is managing it! In an industry that is for the most part decentralised, the onus falls on you to ensure you are taking the safety of your assets and managing them in a way that sees your investments grow. In this article, we are sharing with you some tips on managing your crypto effectively.
DOLLAR-COST AVERAGING
Dollar-cost-averaging (DCA) is an investment strategy in which a person divides up the total amount to be invested across periodic purchases in an effort to reduce the impact of volatility on the overall purchase. The direction that an asset is moving in the short term—up, down, or sideways—becomes less significant when buying Bitcoin in tiny, regular portions with an eye towards its long-term potential.
For instance, the DCA calculator at CryptoHead estimates that $1 put into Bitcoin each month after it reached a peak of around $20,000 in December 2017 has generated cumulative returns for investors of $163. That translates to almost a 200% return on continuous investments.
TIMING THE MARKET
Market timing is the tactic of attempting to predict tops and bottoms based on your expectations for future prices, then buying in bulk or off-loading to maximise returns. Of course, if you do it well, you may make a tonne of money, but it can be challenging with a volatile asset like Bitcoin that has quadrupled multiple times in a short amount of time. Unless you are a highly skilled trader, timing the market can see you lose out quickly.
HODLING
If you are new to the world of cryptocurrency, you may have recently encountered this word in some form and are not aware of its meaning. The term was accidentally created when an online forum post back in 2013 went viral after a bitcoiner tried to say — supposedly drunk at the time — that he would be holding on to his coins. HODL quickly became an official term for not selling your crypto and rather holding onto it as an investment, even when the market dips. If you had purchased Bitcoin at the very start and HODLed your coins, your profits would be extraordinary. In the 13 years since its inception, Bitcoin has climbed exponentially from $0.08 USD to a high of over $65,000 USD, now sitting at just over $45,000 USD. Luckily, many believe that Bitcoin is still in its infancy and you will still be early if you buy & HODL now!
MOVE YOUR COINS ONTO A HARDWARE WALLET
Once you’ve purchased crypto, it’s important to ensure you’re storing it safely and securely. There’s no doubt that exchanges and third-party applications are a convenient way to buy and manage cryptocurrency: you simply have to log into your account via an application or website in order to view your account balances and make transactions. But when you decide to leave your cryptocurrency on a third-party application such as an exchange, you’re trading safety for convenience.
You see, because exchanges hold billions of dollars worth of cryptocurrency, they are enticing targets for hackers. Overall, it is estimated that at least $11 billion worth of cryptocurrencies have been stolen since 2011.
This is where a hardware wallet comes in handy. Cold storage hardware wallets allow you to move your assets offline AND keep ownership of your private key. Your private keys are generated and stored on the hardware wallet which is then protected by a PIN and an optional passphrase. The keys are never exposed to the internet so they can’t be stolen or copied. That’s why it’s known as cold storage.
STORE YOUR RECOVERY PHRASE SAFELY
A recovery phrase, or seed phrase, is the 12/18/24 words generated by your hardware wallet during the initial setup process. It is used to encrypt your private key into an easier-to-understand format (i.e. instead of a string of letters and numbers) which can then be used to identify, authenticate, and grant you access to the cryptocurrency in your wallet. Therefore, anyone who knows your recovery phrase can access your wallet and funds.
Not to mention that if your hardware wallet breaks, is stolen, or is misplaced, your recovery phrase can be used to restore it. But if your recovery phrase is stolen or misplaced, there is no bank or institution to back you up or give you a replacement. And because of the secure nature and random mathematical sequences used to generate the private key, there’s no way you or anyone else can recover it, so you will lose access to your cryptocurrency.
So, it’s vital that you keep it private and secure.
But what are the best ways in which to protect your recovery phrase?
- Never share your recovery phrase with anyone
- Never store your recovery phrase on a computer or smartphone
- Never store your recovery phrase online, where it can be easily hacked
- Never rely on your memory alone to remember your recovery phrase
- Store your recovery phrase on a device such as the Billfodl, which is virtually indestructible
- If you ever have to restore your wallets/accounts, only enter the recovery phrase into the physical device
DEVELOP AN EXIT STRATEGY
Every solid plan needs to include a way out!
According to science, when we make profitable trades, our brain releases dopamine, which makes us feel good about our choices. Without a plan for leaving, that positive emotion will encourage us to stay as a feedback loop begins. Why? Dopamine is a neurotransmitter that increases with more profits, which makes us stay in a transaction. In the event that the market does crash, we anticipate a recovery. In a perfect world, the cryptocurrency market would rise once more. The worst-case scenario, though, is that the correction keeps increasing.
With this in mind, a skilled trader will always consider their exit strategy. Set a plan for the price at which you will conclude the deal for a profit and the price at which you will close it for a loss. Make sure you follow your plan!
With cryptocurrency, you can own your hard-earned money rather than leave it to the mercy of a financial institution. And here at Coinstop, we want to help you secure your future! That’s why we stock the very best in digital security. From hardware wallets to recovery seed phrase storage devices, our products will help you to become your own bank. Cryptocurrency is the future, and it’s time to start securing yours!
**The information presented above is for educational purposes only and does not constitute specific investment, accounting, legal, or tax advice. You should seek legal advice or other professional advice in relation to any particular matters you or your organisation may have.