Margarethe Honisch, a financial columnist, began investing in bitcoin in 2017.She told Insider five key things that she learned from investing in crypto.They include how to choose a wallet and how to deal with the risk.This is an edited, translated version of an article that originally appeared on August 17, 2022.
I’m a financial columnist for Business Insider Germany who bought my first bitcoin for 2,300 euros in June 2017.These are the five key things I’ve learned since then about investing in cryptocurrency.
1.Accept that the risk is higher than other types of investing When investing, one of the first steps is to determine your risk profile.If you start investing in stocks or exchange-traded funds, you have to think about your investment horizon and your personal as well as mathematical tolerance to risk.
With crypto, you can save yourself from thinking about this too much — either you have a high tolerance for risk, or you don’t bother investing in it.
With crypto, you can easily make a double-digit loss within 24 hours, so it’s definitely not for anyone who gets anxious at the slightest market fluctuation.
If you do want to invest in it, I recommend you start with small amounts and get used to the volatility first.
2.Say a mental goodbye to your money My initial investment of 2,300 euros in June 2017 was the first time I put money into cryptocurrency.
I decided to say a mental goodbye to the money so that I wouldn’t get so nervous if the prices fell.
Despite this, I found that the opposite happened: In 2017, the price of bitcoin soared to an all-time high, and my investment increased about sevenfold.
But the price fell by about 3,000 euros at the end of the year.
Despite preparing myself to never see the money again, I experienced a roller coaster of emotions.Since then, I’ve gotten used to the market fluctuations, and I’ve tried to adjust to the fact that there’s no way of knowing how the price will develop.
As we’ve seen with Luna’s fall, even popular and established coins aren’t immune to a major crash.
3.Be skeptical about new coins The crypto market, unlike the stock market, isn’t regulated, which means anyone can put out a new coin.
New coins might sound great, but it’s best to be skeptical at first and assume that each new coin is a “shitcoin” — one that offers no value or purpose.
You should always take a critical view at first.Ask yourself: What problem is the project trying to solve? What is the infrastructure like? Is it a proprietary blockchain, or is the project building on top of an existing blockchain? Who are the competitors? What is the unique selling proposition? Who is on the founding and development team? Do these people already have a track record? How many coins are reserved for founders and investors, and when will they be released?
All the metrics and criteria you know from stocks and ETFs won’t do you any good here, so it’s even more important to understand exactly what you’re investing in.
4.Choose a broker for ease or an exchange for access When you trade your coins through a broker, you don’t have to worry about how you store your crypto.The broker will take care of it and store everything for you.
But many crypto enthusiasts will throw their hands up in horror at this.A key feature of cryptocurrencies is that they are decentralized, and you don’t need to pay through a third party, they say.
By storing the coins with a broker, this basic philosophy of crypto disappears.If the broker prohibits you from accessing your coins or has certain trading hours, then there’s nothing you can do.
If instead you buy your coins through an exchange, you have to worry about where to store them and to make sure they’re secure from hackers.
But the advantage is that they are in your possession, and you can pay and trade with them at any time of the day or night.
5.
Get a wallet and use multifactor authentication to protect it As mentioned earlier, there are several ways to store your cryptocurrencies.Crypto wallets are essential, unless you also want to end up searching a dump for the $181 million worth of bitcoin that you threw away.
A basic distinction is made between hot wallets and cold wallets.Cold wallets are those that are not connected to the internet and are therefore better protected against hackers.
But if you forget the password for your wallet, you can’t simply request a new one through your broker.If it’s gone, it’s gone along with your assets.
Hot wallets are connected to the internet, which makes it easier for you — but also for fraudsters — to access your coins.
The question here is how much you trust the provider, and most importantly, how good your password is.Multifactor authentication is essential here.
Check out: Personal Finance Insider’s picks for best cryptocurrency exchanges
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