Over the last couple of years, cryptocurrency markets have captured the imagination of traders around the world. We have seen massive gains in multiple coins, sometimes making people millionaires overnight with seeming regularity.
Bitcoin trading has become much more mainstream than it was just a few years ago, with the general public becoming more involved. Institutions have also started to move into the marketplace, giving it a bit more in the way of legitimacy.
What makes investing in cryptocurrency difficult for most people because the volatility is much higher than other assets that they may be used to. A very strong return in the stock market would be 25% a year, but in cryptocurrency markets, it can be reached in just a day or two under the right circumstances. However, you need to be well aware of the fact that it works both ways in this market, as it can fall apart quite quickly.
When will I know it is time to invest?
There is no cut and dry answer when it comes to knowing the exact time to buy crypto asset or any other asset for that matter. It is because of this that you are more than likely going to be better served by a “dollar cost averaging”, which is the process of buying small amounts as time goes on. The idea is that if markets fall, you will be buying little bits and pieces of an asset at lower pricing, thereby making the average price of your entire purchase at a lower level, allowing you to profit much quicker.
In other words, you should be looking at this through the prism of being able to simply build a longer-term position. Crypto is a very difficult market to trade from a short-term standpoint because the fluctuations can be so wild. Intraday trading on the stock exchanges has a failure rate of roughly 95%, and with crypto being much more volatile, the failure rate of intraday trading is probably higher.
Think of value
One of the biggest mistakes that retail traders make is succumbing to “FOMO”, which is an acronym for “Fear of Missing Out.” This is when they chase a market that has become extraordinarily hot. In fact, it is quite common that by the time public participants start to hear stories about all of the newly minted millionaires in a market, it is getting close to forming a top.
Because of this, you are going to be much more likely to have success if you look at massive selloffs as an opportunity to buy crypto, especially the more highly supported ones, and not the so-called “meme coins”, or “altcoins.” In other words, it is important to know whether or not a coin is likely to have a longer-term use case scenario.
When you see massive selloffs as we have during the beginning of 2022, most professionals will start to slowly build a position in the bigger coins such as Bitcoin or Ethereum. These are the first places that money will flow back into after a washout.
Altcoins do have a place in your portfolio but know where you are in the cycle
Altcoins do have a place in your portfolio, but you need to understand that they have to have the big players in the crypto market showing signs of strength. If Bitcoin and Ethereum are struggling, the smaller markets such as Cardano, Litecoin, Polkadot, and others will struggle right along with them.
Now that institutional money is flowing into it, we are starting to see crypto act very much like the stock market. In other words, you need the big companies doing well in order to have people searching towards smaller ones in order to boost gains in their portfolio. This top-down approach is quite common in other asset classes and is being used in crypto over the last couple of years.
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