Last year, investors had a front-row seat to a significant cryptocurrency crash following the FTX saga. The aftermath is a grim picture of frightened investors looking for ways to minimize risk and cut their losses. This is after some steep decline in popular coins like Bitcoin and Ether. Many take the opportunity to capitalize on plummeting prices.
Whether one wants to buy or sell crypto, some famous avenues mainly involve purchasing or selling coins through an exchange.
But what is the safest way to buy, sell, and store cryptocurrency?
Cryptocurrency is Inherently Risky
Crypto is the new kid on the block as compared to other assets. There is always some level of risk involved when it comes to investing. However, as a newbie, it is essential to know that risk is almost certainly part of the deal. But many investors are attracted to crypto as it is the least regulated.
As such, putting your funds behind crypto exposes you to a greater risk of fraud and losing your funds if there is bankruptcy. There can also be significant losses due to an increase in volatility.
The main argument behind the lack of regulations is that regulating crypto could stunt innovation, down siding the role of decentralized currency. Many cryptosystems try to cut out intermediaries like big banks and the federal government.
But how can one transact safely in the space and still avoid scams and fraud?
One can use a few general tips, whether buying, selling, or storing crypto:
- Use a secure device: When either purchasing or selling crypto, there is a likelihood that you will give out your financial info. It will be devastating if hackers get their hands on such information. Always have the option of using your personal computer. This helps establish a secure connection between you and the internet, which keeps your sensitive information safe.
- Choose a reputable exchange: When buying or selling crypto, there is a need for you to scope out different crypto exchanges when comparing the cryptocurrencies being offered, the fees in transactions, and the exchange’s track record.
- How you will store your crypto: Always choose a safer way of storing your crypto. An alternative may be a hardware wallet, which stores your private key safely in an offline storage device.
- Consult your budget: When investing in any asset, consider investing in something that you can comfortably afford to lose.
Safely Buying and Selling Cryptocurrency
When venturing into the crypto space, ensure that you understand what it is, how it works, and the potential benefits and disadvantages. Researching the history of Bitcoin and other altcoins gives you an in-depth look at the current state of the market. Additionally, it gives insight into whether it is the right time to buy, sell, or hold. The market is so volatile, which makes researching so essential.
Additionally, just before investing, understand the value. Understanding how the price of altcoins is affected becomes confusing. This is because the price of every coin is affected by the others. For instance, Bitcoin affects the price of altcoins. Understanding this keeps you safe from the volatility of the bubbly nature of the crypto sphere.
Be keen on researching the kind of exchange you are dealing with.
Some of the questions you may ask are:
- What is the exchange’s reputation?
- How high are the exchange fees?
- Are their payment methods secure?
- Is the exchange available in my location?
- Does the exchange require an ID?
- Is the exchange regulated, and if so, where?
As there has been a boom in the crypto space, it also has generated several scams and fake exchange platforms popping up. As such, you must have an entire picture of the authenticity of the platform you choose.
There is a need for you to develop a stop-and-trade plan. When your coin reaches your target price, you stop and sell some of it. The sold coins prevent total loss when the coin’s value collapses. This plan is essential as crypto prices usually jump from 60-80%, not 2-3%.
Safely Storing your Cryptocurrency
After buying a coin or an asset, there are two ways you can store your crypto, either on the exchange or in a digital wallet. However, leaving coins in exchange is risky due to reports of hacking in recent months. Different wallets fit the needs of everyone and also are online and offline. The choice mainly depends on the security requirements of an individual.
Major crypto wallets include:
- Paper wallets: They feature QR or other codes. As such, they are generally unsafe.
- Hardware wallets are physical, and their storage happens in USBs or similar devices. They are always offline, which keeps them safe from malware and other attacks.
- Cold storage: Cold storage removes coins from any connected or active digital device.
- Hot wallets: This is a storage type connected to the internet.
- Multi-signature wallets demand more than one signature before a Bitcoin or altcoin transaction can go on, making it difficult for anyone to steal or transact coins.
Always choose a storage that can securely protect your assets.
Takeaway
Still, even with the potential risks associated with investing in crypto, cryptocurrency can be a valuable way to diversify your investment portfolio. Additionally, it can spread your risk across a few different asset classes.
With this handy guide, any beginner can learn how to develop the best trading strategies and avoid common cryptocurrency mistakes.
Vincent Munene is a freelance writer and a great blockchain enthusiast. Blockchain has changed his life in terms of financial freedom and in return, he likes to educate people and keep them up to date on everything blockchain. He is a Biochemist by profession and also loves to play the piano.
