How to Avoid the Hype and Make a Success of Crypto Investing

To the outside observer, the crypto markets must look extremely schizophrenic. One moment coins are experiencing all time highs. Next, the news is devoted to the recent dip.

Who in their right mind would want to partake in such a volatile market? Well, like me, many believe that crypto could help usher in one of the greatest transfers of wealth seen for a generation.

Those who got in early, have already seen their personal wealth bloom. Some into the $millions. However, it’s also a very volatile space, and getting your investment strategy wrong could easily see you lose your shirt.

Comparing crypto to other investments

When comparing Crypto to other forms of investment there are some common characteristics. It’s a bit like Forex in that you are trading currencies for one another. The major difference is its relative nascency when compared to FX. In this sense, it’s more akin to investing in penny stocks.

You do have your “blue chip” coins at the top but even those are wrought with volatility that makes investing a gamble much of the time. Unlike stocks and shares however, coin holders are just that, holders of a digital asset. There is no equity ownership relative to the share of your purchase. Most people invest in these assets speculating that their price against Bitcoin or the US Dollar will go up.

Technically the only thing that determines the price of a coin is supply and demand. If there are more buyers than sellers, the price will go up. External correlation to price is debatable but typically strong announcements about growth, new partnerships, etc. will help drive new interest in a project, which in turn will often cause the price to increase.

It’s why more sophisticated investors will look for strong fundamentals like use-cases, team, product, and roadmap, among other things, to determine whether or not an asset is worth investing in.

Why Crypto is so volatile

Ultimately, emotion and sentiment drive the volatility of cryptocurrency assets. The slightest piece of bad news can shift sentiment, bring about fear, and cause a downturn in the market.

Liquidity also adds to the volatility. Although the overall crypto market cap has recently reached new heights at over $1T, it is staggeringly illiquid and has a low market cap in comparison to other major financial markets. For example, the market cap of gold is $11.95T on its own. The NASDAQ market cap is around $15T. Further, the Forex markets print daily volumes in the trillions as well, compared to the roughly $89B in daily volume of the entire crypto market at the time of writing.

This disparity means that large buy and sell orders on the crypto market will create massive fluctuations in price. Until crypto compares to other financial markets, this volatility will continue. But this is also why people are so attracted to crypto because it has a lot of room to grow.

What to look for and what to avoid

I’m primarily a fundamental investor. I look for projects with a strong, public-facing team that has a history of success in both easy and difficult times. I try to find coins whose market cap is low and where the tokenomics support growth.

That means, there is no absurd rate of coin production or APY for staking. Projects that are producing millions of coins a day to offer their users 1000%+ ROI are Ponzi schemes and will die incredibly fast.

The biggest red flag is an anonymous team. If the people behind a project are not willing to publicly reveal themselves, it’s likely they are unsavory characters and potential bad actors who will pull the rug from under investors to make a quick profit.

I look for products that have an actual use-case. Even if the use-case is many years from being adopted, it’s important to see that code is being deployed and a team is working on it regularly.

There is, of course, much more to proper due diligence and for this reason, I end up skipping and in some cases, missing opportunities. But I’d rather make educated, long-term plays than gamble.

You Don’t Need to Day Trade to Earn from Crypto

What many don’t realise is, you don’t need to trade to invest in crypto. There are a plethora of ways of getting involved that suit different tolerances to risk, many of which don’t require day trading.

The best strategies are those that allow users to earn an income as a result of their participation in the network. Investing in high-quality staking and masternode projects is one such example. By staking, users can effectively dollar cost average into their positions, lowering their overall downside risk.

The best thing any investor can do is continuously learn and always manage risk accordingly. Never get into situations where you take on more than you can afford if everything went to $0, and consistently take profits when you feel it’s appropriate.

By Nick Saponaro, Co-Founder & CIO at decentralized payment ecosystem, Divi Project

About Nick Saponaro, Co-Founder and CIO, The Divi Project

Nick Saponaro is an entrepreneur, crypto enthusiast, and keynote speaker who joined Divi in 2017 as a full stack developer and was quickly invited to become a co-founder of the fledgling business.

As CIO he is responsible for Divi Core – all of the company’s web services, client-facing apps, and protocol development that will actualise Divi’s mission; to make crypto easy and drive its mainstream adoption.

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