The most important thing to remember about cryptocurrency investment is that the fundamental rules of investing still apply to blockchain-based instruments. Even though the technology has changed, the rules of the game are still the same.
The first and most important guideline for cryptocurrency investment is the great American investor Benjamin Graham’s first rule of investing. That rule was “don’t lose money!!” Graham’s second rule investment was:“see rule one.”
Therefore, the most vital fundamental of cryptocurrency investing is to stop if you are losing money. Always remember that the purpose of investment is to make money; if you are not achieving that goal, you are a failure.
Cryptocurrency Investing Basics
There is no magic method of cryptocurrency analysis that will tell you everything about a currency but there are a few basic concepts you should understand. These concepts include:
This term refers to the cost of an individual unit of cryptocurrency such as one Bitcoin. It is the amount of fiat currency you will pay for one altcoin.
Market Capitalization or Market Cap:
The value of all units of a cryptocurrency for sale in the market right now. The Market Cap is determined by multiplying the Circulating Supply by the Coin Price. Dividing the Market Capitalization by the Circulating Supply will reveal the Coin Price.
This term refers to the number of units of a cryptocurrency that are for sale on the market. Many methods of analysis are based upon the difference between the Circulating Supply and the Total Supply.
This term describes all the units of a cryptocurrency in existence. It includes both those in the market, and altcoins being held by investors or speculators. The difference between the Total Supply and Circulating Supply can determine the potential Coin Price.
An artificial limit on the number of units of a cryptocurrency that can be produced. Some altcoins such as Bitcoin; have a Maximum Supply, others like Ethereum, have no Maximum Supply. Some investors like Maximum Supply because it can lead to scarcity and high prices. Others prefer no Maximum Supply because it might make unlimited growth possible.
Government-issued paper money such as dollars or Euros.
The difference in price between separate currencies. Investors and speculators often try to make money off the difference.
Strategy is everything in Investment
All successful investors have a strategy, but there is no perfect strategy. Instead, you will have to find the strategy that is right for you.
A popular and easy to understand one is: buy and hold. You simply purchase some altcoins and hold them until they gain in value. The advantage of this strategy is its simplicity; the disadvantage is that it requires patience. If you are a patient or lazy person or have little time for investment buy and hold often works.
Other strategies can involve maximum or minimum price – that is you simply sell the coins when they hit a certain price. The problem with an artificial limit like that is you might miss on future price gains.
Beyond that, you should research more advanced investment concepts such as Value Investing, Technical Analysis, FOREX, Automated Trading, Currency Trading, and so on until you find the method that works for you. There are many excellent investment strategies around so read about; and study, as many of them as you can. The more you know, the easier investment will be.
The second most important fundamental of investing is to find a strategy of investment you are comfortable with and stick with it. That is the secret to all of the great investors, they discovered a strategy that they liked and stuck with it.