How I Got Into Investing in Cryptocurrency
Last month, I got into learning about Cryptocurrencies. It started when my friend Colin who runs Credit Class – a class that teaches people how to leverage credit cards for free travel and business – kept going on and on about Bitcoin Vault.
Every time I go on Instagram, I would see his stories about Bitcoin (BTC), Bitcoin Vault (BTCV), and all the money he was making.
If you haven’t already guessed, I love money, or I wouldn’t be writing this blog post.
The Rule of 7 is one of the oldest concepts in marketing. It means that you have to hear or see a message at least seven times before you buy it.
So, when you’re sharing screenshots of your profits daily on your IG Stories (this is the new way of doing business nowadays), people start to wonder. Like I did.
“Maybe I should take a look into this cryptocurrency stuff,” I thought to myself.
And so I did.
After reading two books, which are The Crypto Intro by Nathan Rose and the Cryptocurrency Investing Bible by Alan T. Norman, I started kicking myself.
I first heard of Bitcoin and Cryptos in 2016 because one of my ex-coworkers was mining for them as a hobby (he was pissed later on that he didn’t take it more seriously).
As a fellow programmer and investor, I just wrote it off as a scam. (naivety can cost you opportunities).
“This sounds like a fad, it’ll probably evaporate soon,” I thought.
This is what an unaware, arrogant, and selfish 25-year-old programmer sounds like.
I didn’t know anything about Cryptocurrencies, it was my first time learning about cryptocurrencies, and I thought I was smart enough to pass judgment on cryptocurrencies.
Talk about ego.
A quick Google search of BTC market cap would have revealed Bitcoin to be worth $14.4 Billion with a capital B. You do not ignore Bs, they’re better than As! Unless you’re from a traditional Asian family under the watchful eye of a tiger mom. Then you better only go for As or else she’ll be going for your ass.
Fast forward to today, we have Bitcoin’s market cap at an astounding $117.81 Billion.
Nothing to sneeze at here folks, only tears.
Anyhow, you’re here to learn about how to invest in cryptocurrency and I’m going to drop some tips on what I’ve learned from those books and my own “investing” in the markets.
There’s going to be 3 tips of “To Do’s” and 3 tips of “Just Don’t” so let’s dive in!
The Do’s When It Comes to How to Invest into Cryptocurrency
1. When investing in cryptocurrency, ALWAYS HAVE 30% OF CASH ON THE ACCOUNT.
This is a mistake I made the first time I invested in Bitcoin (BTC). I transferred $1800 into Coinbase (if you’re looking to start an account for crypto trading, you can use my referral link for Coinbase and get $10!).
Then, I proceeded to buy $1800 of Bitcoin (BTC).
I’ll be transparent; most of that money was for buying mining plans with miningcity (I’ll probably talk about that in another post).
However, you NEVER want to spend 100% of your cash in your trading/investing account AT ANY TIME.
Why?
Shortly after I bought Bitcoin for all my money in the account. The price rose and then dropped.
And I hope we all remember our principal investing rule:
“Buy Low, Sell High”
The price was lower now; it was an opportunity to buy more! But the only problem is I have no money left!
This 30% of cash is for opportunities when they appear and they will appear often as any sort of news can significantly affect the crypto prices. You want to be invested, but never fully invested.
Therefore, here’s another rule:
You never want to hold ALL cryptocurrency or ALL cash.
You want to be able to profit (i.e. be holding some cryptos) and you want to be able to take advantage of opportunities when you can (i.e. have 30% cash for opportunities).
Again, when the price falls significantly, it is your chance to buy more, and you should buy more.
Remember? Buy low, sell high.
Conversely, when the market grows, and when people are becoming greedy, you should have fewer assets in Bitcoins. That is, you should sell some BTC to get out and profit and maybe take some of that profit to bet on some Altcoins.
That being said, cryptocurrency is very volatile, you have to have certain risk tolerance. However, if you want some sort of stability, then just keep some money in Bitcoin, which is more stable.
YOU NEED TO BE DILIGENT ABOUT THIS
EVEN WHEN THE MARKET IS POPPING AND EVERYBODY IS BULLISH, YOU STILL NEED TO KEEP AT LEAST 30% CASH!
Especially in the bull market because people are likely to be all hyped up and the prices are overinflated, which may point to an incoming price drop.
2. How to Invest in cryptocurrency? Know your reasons for entry and exit AND STICK TO THEM!
Another thing happened recently, I bought Chainlink (LINK) at $17.00 on August 13, 2020. Or 2.31688344 LINK for $39.39 (converted from BTC).
The market was “popping” and here I am going against the advice I just gave you above.
I went in with the prediction that this was going to go higher. I reasoned that it will probably get up to $25 and I’ll sell at $20.
3 days later, it did hit $20.
Did I sell?
No, I didn’t sell, I GOT GREEDY and thought that it’d make it to $25! FOMO (fear of missing out) got the best of me and now it has fallen to $15.58!
I knew when I wanted to exit and I had an exit plan:
SELL FOR $20!
But I was lazy and I wasn’t diligent, and now, I’m in the red.
Learn from my mistakes, here’s your rule for this tip:
All your plans should be WRITTEN OUT ON PAPER and YOU MUST NEVER RETREAT FROM THEM!
Keep your stops in your head and abide by it at all times. If you say you’re going to close out at $20, then close out at $20! Not $25! Keep your word!
Don’t be like me…
3. How to Invest into Cryptocurrency Smartly: Diversify your marketplaces and assets
Certain exchanges are available to certain countries and certain exchanges offer certain cryptos for trading.
For example, I use Coinbase and Liquid.
Coinbase is available in the USA but Liquid is not.
Thank goodness that I’m a Canadian citizen because I can use my Canadian identity to sign up with Liquid.
The main reason you want to diversify your marketplaces (exchanges) is for security reasons. Crypto exchanges can get hacked and if you place all your cryptos and cash on one exchange, then you’re putting all your eggs in one basket. In that case, the hacker only needs to hit one basket (your basket) to take off with all your assets.
Similarly, don’t put all your money into one crypto. Like trading stocks, you want to diversify your holdings. So, when one crypto is down, another might be up.
To summarize, the rules here are:
If you trade, you should do it on at least two top exchanges and these exchanges should be credible (i.e. not newly opened exchanges).
Diversify your crypto holdings and investments.
Alright, now that we’ve reviewed the Do’s when it comes to how to invest into cryptocurrency, let’s look at the Don’ts when it comes to investing in cryptocurrency.
The Don’ts When It Comes to How to Invest into Cryptocurrency
4. Don’t risk more than 10% in one trade
Like I said above, the first mistake I’ve made is putting all my eggs into one basket. That is, spending all my money on Bitcoin on the first trade and leaving no cash in my account for opportunities.
I highly advise doing that, because when the price of the crypto drops AND IT WILL DROP, then you’ll be stressed and frustrated. Also, you’ll have no money to “buy the dip,” or buying the price drop of the crypto.
Therefore, when you’re entering a trade, don’t risk more than 10% of the risk. If you have $1800 in fiat currency (like USD), then you would spend no more than $180 buying the crypto.
If you’re entering five trades that day, then you’ll divide 10% of the risk by 5. In other words, you’ll be risking $36 on each crypto.
One more thing, have a “tradable” amount of money in your head when you’re trading. What I mean is, if I had $200,000 in my bank account, I will deposit $20,000 into the exchange and trade with that. No more.
To keep your sanity and peace of mind, my best rule for this tip would have to be:
Risk the amount of money that you don’t mind losing.
5. Don’t Make Frequent Trades by Trying to Earn More
It’s not as bad as stocks if I remember correctly. It’s been a while since I traded stocks. When I was trading stocks in Canada, I was paying $4.95 minimum to enter a trade. That meant a total of $10 to buy and sell a stock.
For my Canadians reading, that was Questrade. God, how happy I was to hear of and use Webull for commission free trading in the United States.
Bottom Line: You will lose a lot of money by paying commission fees.
When I bought $1800 worth of Bitcoin, I was also charged a $26.82 for trading fees.
So, what’s the solution?
RULE: Don’t trade so much!
This might be advice that falls on deaf ears for traders, but I am NOT a trader. I’m an investor. I buy and hold, watch the appreciation, and sell at a higher price.
Honestly, I tried trading earlier in my 20s and it was just very stressful and frustrating. Overall, I lost money doing it. I know myself well enough to know that I’m the type of person to be checking the prices and the news every ten minutes – enough to turn me paranoid. It just isn’t for me.
Investing is different for me because I just buy when it’s low and I don’t mind holding it for the long term to sell when it’s high.
Look at crypto movements at most once a day. Just choose a time in the day like breakfast, lunch, or dinner where you’re comfortable enough to do this.
I do this when I’m taking a poop in the morning. You need to know this, it’s not TMI.
You’ll go crazy if you’re always checking the crypto prices and news every ten minutes.
6. Don’t Listen to the Crowd
RULE: Have your own opinion.
People love to give opinions. It’s in our human nature. You will hear forecasts here and there.
This is especially true if you’re on Facebook Groups for crypto trading. Don’t get swept away by the noise. Do your research!
You can listen to other peoples’ opinions, but you cannot invest based on their opinion.
Before I buy anything, I always take a look at the price movements over several days. This is for me to get a feel for how this crypto works and what the sentiment for it is. After I’m comfortable and confident about a trade, I invest 10% of my “trading amount” and that’s it!
I’ll come back and look at the relevant price and news for my investment every day, during my set time, and then take any actions that are needed.
As a side story, my mom wanted to buy shares in TD. She thought the stock was at $70 now and that it was $54 in March 2020.
I am 100% confident that she got her source from her friend “investing” in stocks because her friends are a bunch of people who like to brag that they know what they’re talking about (when they don’t).
A quick Google search would reveal that TD never even hit $70 in their lifetime on the exchange.
Am I telling you this story so I can throw my mom under the bus?
No, but I did save her from losing $15,000 on that trade. I was losing my mind talking to her.
The point of me telling you this story is to beat into you the rule to have your own opinion. Invest in what you think is right and IGNORE THE NOISE.
Are You Now Ready Investing into Cryptocurrency?
Probably not.
You’ve got some pretty solid do’s and don’ts in this post, but I’m a man of preparation and I believe you should do yourself a favor and read the two books I recommended The Crypto Intro by Nathan Rose and the Cryptocurrency Investing Bible by Alan T. Norman.
They will give you the confidence you need to make your first trade.
However, you have gotten some pretty solid advice on how to trade, so you don’t make the same mistakes I did when I first started trading.
Anyway, always keep learning because things change quickly, and having information and knowledge will keep you at the top of your game.
By the way, be sure to check out my video “How Cryptocurrency Works for Beginners – All You Need to Know”
Happy trading,
Donald