Getting into cryptocurrencies can be an enticing venture for many, whether it be because they’re looking to set up a new investment or just to enjoy the benefits that owning crypto assets has to offer. As with any new investment prospect, however, there are many considerations to keep in mind first to ensure that the time and resources you’ll put into cryptocurrencies won’t just go to waste. With that in mind, here’s an expanded list of essential financial habits that new cryptocurrency users should exercise.
Table of Contents
1. Keep Up With Crypto Market News
According to cryptocurrency price-tracking site CoinMarketCap, the global crypto market cap is currently around USD 2 trillion dollars. Indeed, the crypto market continues to grow day by day as more people actively become participants to buy, trade, or hold crypto assets. While this can be encouraging for new crypto users, you also have to keep in mind that cryptocurrencies are highly volatile and that prices can easily change in a short period of time.
Hence, it’s your responsibility to always do your research and keep track of the performance of the crypto coins you own over time. Make it a habit to follow crypto news to be more aware of market changes. It can be easy to be swayed into making an emotional decision when you see a crypto coin’s value go higher or lower. However, if you have a clear understanding of what causes those price changes, then you’re able to make more informed financial decisions about your assets.
Strategies for Staying Informed:
- Subscribe to reputable cryptocurrency news websites and newsletters
- Follow influential crypto experts and analysts on social media platforms
- Join cryptocurrency forums and discussion groups
- Use crypto tracking apps to monitor real-time price changes and market trends
- Attend virtual or in-person cryptocurrency conferences and meetups
Remember, staying informed isn’t just about price movements. It’s crucial to understand the underlying technology, regulatory developments, and broader economic factors that can impact the cryptocurrency market.
2. Maintain Wallet Security
Security should be one of your top priorities as a new crypto user. Hackers vying to steal your information and security breaches are some common threats in the crypto world, but you can significantly reduce such risks by using a secure crypto wallet. Create a strong and unique password for your wallet and activate its two-factor authentication (2FA) feature. As you acquire more coins over time, be sure to research which wallets suit each one as well. For example, you’ll need an XMR wallet to store your Monero funds while other types of coins may need a different wallet.
Never share your private keys with anyone as they provide full access to your cryptocurrency holdings. Regularly check for software updates for your wallet as well to ensure it’s up to date with the latest security patches, thus protecting your assets from any new threat that may be targeting vulnerable crypto users.
Additional Security Measures:
- Use hardware wallets for long-term storage of significant amounts
- Implement a multi-signature wallet setup for added security
- Regularly backup your wallet and store backups in secure, offline locations
- Be cautious of phishing attempts and only use official wallet websites
- Consider using a dedicated device for cryptocurrency transactions
- Educate yourself about common crypto scams and how to avoid them
3. Create Your Own Trading Plan
Despite being new in the market, it’s necessary to create your own trading plan as this allows you to outline personal goals on what you want to achieve with your crypto investments. Map out details such as what crypto coins you’re looking to buy, what your risk tolerance is, the investment amount you’re willing to put in, target gains, and maximum losses you’re comfortable with before you exit the market. Make it a routine to regularly review your trading plan as well to keep it in line with market changes. Financial goals can change over time, so your crypto trading plans should accurately reflect that.
Components of a Solid Trading Plan:
- Entry and exit strategies for different market conditions
- Risk management rules (e.g., stop-loss orders, position sizing)
- Time frames for different types of trades (short-term, long-term)
- Criteria for selecting cryptocurrencies to invest in
- Performance metrics to track and evaluate your trading success
- Emotional management strategies to avoid impulsive decisions
Remember that your trading plan should be flexible enough to adapt to changing market conditions while still providing a structured approach to your cryptocurrency investments.
4. Diversify Your Portfolio
Another important move for new crypto users is to always diversify their portfolio. The more varied the crypto assets you own, the better. This is because even if the value of one of your coins plummets, any loss can still be offset by gains from your other crypto assets.
How you can diversify your investments still depends on your needs and trading style. If your risk tolerance is low, for example, then consider including stablecoins in your portfolio—a type of crypto coin that offers stable pricing by pegging its market value to a different asset such as fiat currency. You can also choose crypto coins based on their market performance or through recommendations by crypto experts. However, since the crypto market remains unpredictable, remember that you’ll still need to review and adjust your portfolio from time to time to keep up with it.
Diversification Strategies:
- Invest in different types of cryptocurrencies (e.g., payment coins, utility tokens, privacy coins)
- Consider allocating a portion of your portfolio to blockchain-related stocks or ETFs
- Explore DeFi (Decentralized Finance) projects for additional investment opportunities
- Invest in cryptocurrencies with different market capitalizations (large-cap, mid-cap, small-cap)
- Consider geographic diversification by investing in projects from different regions
- Allocate a small portion of your portfolio to promising new projects or ICOs (Initial Coin Offerings), but be aware of the high risks involved
5. Budget Your Investments
If you plan to actively trade crypto, then set a strict budget plan to determine how much of your income will go to investments, savings, and expenses. This could change over time depending on the market performance and the value of your current assets, so always review your finances to make the necessary adjustments.
However, do remember the golden rule of investing: Only invest the amount you can afford to lose. This is especially true in cryptocurrency due to its high volatility. Consider long term when it comes to cryptocurrencies while also investing the amount you can afford over time to help steadily grow your portfolio.
Budgeting Tips for Crypto Investors:
- Use the 50/30/20 rule: 50% for needs, 30% for wants, and 20% for savings and investments
- Set aside a specific “crypto budget” separate from your regular savings
- Consider dollar-cost averaging (investing a fixed amount regularly) to mitigate market volatility
- Keep an emergency fund in traditional savings before allocating money to crypto
- Track all your crypto-related expenses, including trading fees and taxes
- Regularly reassess your budget based on your financial situation and market conditions
6. Understand and Manage Tax Implications
As cryptocurrencies gain mainstream adoption, tax authorities around the world are paying closer attention to crypto transactions. It’s crucial for new crypto users to understand the tax implications of their activities to avoid potential legal issues and unexpected tax bills.
Tax Considerations for Crypto Users:
- Keep detailed records of all your cryptocurrency transactions
- Understand which activities are taxable events in your jurisdiction (e.g., selling crypto, trading one crypto for another, using crypto to purchase goods or services)
- Consider using crypto tax software to help track and calculate your tax obligations
- Be aware of the difference between short-term and long-term capital gains tax rates
- Consult with a tax professional who specializes in cryptocurrency
- Stay informed about changing regulations and tax laws related to cryptocurrencies in your country
Remember that tax laws vary by country and are still evolving for cryptocurrencies, so it’s essential to stay updated and seek professional advice when needed.
7. Implement Risk Management Strategies
While diversification is a crucial aspect of risk management, there are additional strategies that new crypto users should implement to protect their investments:
Risk Management Techniques:
- Use stop-loss orders to limit potential losses on your trades
- Implement position sizing to ensure that no single investment can significantly impact your overall portfolio
- Consider using leverage cautiously, if at all, as it can amplify both gains and losses
- Regularly take profits on successful investments to lock in gains
- Be prepared for extreme market volatility and have a plan for both bull and bear markets
- Avoid FOMO (Fear of Missing Out) and FUD (Fear, Uncertainty, and Doubt) by sticking to your trading plan
Remember that while cryptocurrencies offer the potential for high returns, they also come with significant risks. Proper risk management is essential for long-term success in the crypto market.
8. Continuously Educate Yourself
The cryptocurrency space is rapidly evolving, with new technologies, projects, and regulations emerging regularly. As a new crypto user, it’s crucial to commit to ongoing education to stay ahead of the curve and make informed decisions.
Educational Resources and Strategies:
- Read whitepapers of the cryptocurrencies you’re interested in
- Take online courses on blockchain technology and cryptocurrency trading
- Attend webinars and virtual conferences hosted by industry experts
- Experiment with small amounts on decentralized finance (DeFi) platforms to understand how they work
- Join local cryptocurrency meetups or online communities to network and share knowledge
- Follow reputable cryptocurrency podcasts and YouTube channels
By continuously expanding your knowledge, you’ll be better equipped to navigate the complex and dynamic world of cryptocurrencies.
9. Practice Responsible Trading
While the potential for quick gains can be tempting, it’s essential for new crypto users to develop responsible trading habits to ensure long-term success and financial stability.
Responsible Trading Practices:
- Avoid trading with borrowed money or funds you can’t afford to lose
- Set realistic profit targets and don’t let greed drive your decisions
- Take regular breaks from trading to maintain a healthy work-life balance
- Be aware of your emotional state and avoid making decisions when you’re stressed or overly excited
- Use demo accounts or paper trading to practice strategies before risking real money
- Regularly review and learn from your trading history, both successes and mistakes
Remember that successful crypto trading is a marathon, not a sprint. Developing discipline and emotional control is just as important as technical knowledge.
10. Contribute to the Cryptocurrency Ecosystem
As you become more familiar with the cryptocurrency world, consider ways to contribute to the ecosystem beyond just trading. This can provide additional insights, networking opportunities, and potentially even new income streams.
Ways to Contribute:
- Participate in governance voting for cryptocurrencies you hold (if applicable)
- Consider running a node for networks you support to help improve decentralization
- Contribute to open-source cryptocurrency projects if you have relevant skills
- Write articles or create content to help educate others about cryptocurrencies
- Explore opportunities in the growing crypto job market
- Support businesses that accept cryptocurrency payments
By actively participating in the cryptocurrency ecosystem, you’ll gain a deeper understanding of the technology and its potential impact on the future of finance.
For those who have just started dipping their toes in the crypto market, buying and trading can seem daunting at first. After all, there’s a lot of research that needs to be done to get fully comfortable with crypto terminologies and practices. But don’t let this hurdle discourage you from building these useful financial habits about crypto investing. Let the pointers discussed in this article guide you in making the most of your cryptocurrency investments.
Remember that the cryptocurrency market is still relatively young and volatile. While these habits can help you navigate the crypto world more effectively, it’s crucial to approach all investments with caution and never invest more than you can afford to lose. As you gain experience and knowledge, you’ll be better equipped to take advantage of the opportunities that cryptocurrencies offer while managing the associated risks.
