Today we are going to talk about the 7 fundamental rules you must follow to start investing in virtual currencies and trading cryptocurrencies well. Cryptos are now firmly established in the financial landscape. More and more institutions, managers, and investors pay attention to it out of market principle. The emergence of the crypto industry in just a few short years has contributed to the emergence of thousands of crypto currencies. Difficult to navigate, establish a clear strategy and have a defined investment benchmark.
Rule 1: HAVE A CRYPTOCURRENCY INVESTMENT PLAN and Determine your crypto investor profile
A major rule for being interested in cryptocurrencies is to be in agreement with your expectations. There are several thousand cryptocurrencies with various characteristics. Many are illiquid and therefore more risky. The less important of these cryptos are more like betting than investing. Excluding the risk, it is, therefore, more relevant to own liquid cryptocurrencies from a medium-term perspective. In the long run, the important thing will be the selection of the asset in question, and thus risk aversion.
Each investor has a different profile. It is important to determine the acceptance of your maximum loss to measure the risks you are prepared to take.
It is also important to set time horizons: should I invest very short term, medium term or long term?
You should also Sort virtual currencies according to their profile. The main cryptos (in valuation) to date are: Bitcoin ($ 280 billion); the Ethereum ($ 50bn); Thether ($ 16bn); Ripple ($ 10bn). These are a bit like the big stock indexes. A large part of upcoming crypto such as BNB, OMG, Augur, CHSB SwissBorg, etc.
Are based on the ETH Blockchain . This is the case with cryptos like BNB, OMG, Augur, CHSB SwissBorg, etc.
These tokens can be exchanged. Each token must be thoroughly investigated before any investment. Choosing to bet on industry “indices” (ETH, BTC, etc.) or industry players (mainly tokens) are two elements to be separated. The largest cryptos allow risk to be spread while benefiting from the emergence of the industry. This is less the case with small cryptos (especially those with less than a few tens of millions of capitalization ) where the risk is much higher.
Rule 2: ALWAYS THINK ABOUT AN INVESTMENT STRATEGY IN VIRTUAL CURRENCY
You must always Define a strategy to invest or trade cryptocurrency. Depending on your profile, it is important to determine a positioning frequency and your degree of coverage. These are the fundamentals of money management. It is therefore important to answer a few fundamental questions:
- What is my availability to invest? What are my time horizons? What extreme movements can I expect during this period?
- What will be the ideal split between cryptos of different sizes? Favor the most liquid? The least liquid?
- According to these criteria, it is important to opt for an optimal money management strategy.
The most important thing is to take your marks, especially for beginners. It is often recommended to enter the investment gradually. To acquire a progressive experience and makes it possible to minimize the risk which remains high with the lack of experience (via regular observation of the market, books, a logbook, etc.… Dozens of techniques exist). It is better to take your marks gradually: pay attention to the leverage effect, etc. This experience will allow you to refine your strategy as closely as possible to your investor psychology. It is a key parameter for the stability and consistency of your strategy.
Rule 3: In VIRTUAL CURRENCY: “WHAT IS INVESTED IS LOST”
When it comes to cryptocurrency investment, it is always better to consider what is invested “as lost”, in the sense that trading cryptos should in no way involve raising the capital that you will need. Compliance with this rule is a matter of safety. Cryptos do not follow an exponential price line and their volatility remains high, which in and of itself is not necessarily a bad thing in terms of trading.
But poor management and bad economic times can quickly negatively leverage these characteristics of cryptos and become expensive. Depriving oneself of personal needs to create crypto capital is often observed, especially among the young public in the industry. Trading cryptos is good, with what you don’t need is better.
Rule 4: CRYPTO CURRENCIES DON’T ALWAYS MAKE YOU RICH
Since cryptos have generated a very large number of wealthy people, there is no shortage of promises of very fast wealth, and there are many offers promising to get rich in a short time using cryptos. Please note: a good deal that comes your way is usually never a good deal. Beware of sites that convey the idea that your crypto investments will allow you to get rich quickly. Do not hesitate to consult the AMF blacklist beforehand.
Although short-term trading is often put forward, it is, for the inexperienced, one of the riskiest approaches. Multiplying your positions without sufficient skills is systematically multiplying your risk. Again, it depends on your profile.
There are no miracles on the price of cryptos. The management of crypto assets, so that it represents a somewhat significant part of your income, requires significant capital and skills.
Rule 5: BITCOIN, ETHEREUM, RIPPLE: DIVERSIFYING YOUR CRYPTOCURRENCY PORTFOLIO
|Crypto||Valuation||Average daily volume traded in 2020||Average annual performance in recent years|
|Bitcoin (BTC)||$ 280bn||$ 25 / 35bn||+ 259% (last 5 years)|
|Ethereum (ETH)||$ 52bn||$ 12 / 18bn||+1 948% (last 4 years)|
|Ripple (XRP)||$ 12bn||1.5 / 2.5Bn $||-29% (last 3 years)|
This summary of the characteristics of the main virtual currencies to date makes it possible to identify the degree of liquidity and performance of each crypto. Ethereum, compared to its valuation, remains one of the most liquid cryptos, and which also offers high performance. For its part, Bitcoin also remains very liquid and offers particularly interesting annual average performances.
In the table above, you can see the differences that exist between cryptos in terms of volatility. Ripple, valued 23 times less than BTC, belongs to the category of cryptos that already have relatively high volatility. It is recommended to clearly differentiate “utility” cryptos (BTC, ETH, etc.) from tokens and purely speculative currencies. Depending on these parameters, you will have to ensure the good diversification of your portfolio which will constitute a pillar of your strategy. It is often interesting to mix very liquid and safer crypto assets with less liquid and longer-term cryptoassets.
Rule 6: ALWAYS CHOOSING THE RIGHT TRADING PLATFORM AND ONLINE BROKER
The quality of the Trading platform remains important. The features available on the trading platform, the fees applied by the online broker (withdrawals, etc.), the available crypto offer, or the liquidity of the platform are all criteria to be taken into account in the choice of your investment/trading tool.
There are many specialized platforms like Binance, SwissBorg, Coinbase, to name a few, of which the liquidity (the flow of transactions) may be sufficient. The creation of your crypto Wallet allows you to have very broad and personalized crypto management. It is also possible to trade cryptos via derivatives on crypto currencies, a solution offered by online stock brokers like eToro or XTB for example.
Rule 7: TAXES: DECLARE YOUR CRYPTO CURRENCIES TO THE TAX AUTHORITIES
Since the 2019 finance law, the taxation of crypto currencies is that of the flat tax. As for a share, capital gains are taxable up to 30%. This declaration is made annually and it is important not to forget to make it. Please note: most cryptocurrency brokers are foreign companies and your account is therefore often opened abroad. Don’t forget to report it! As an indication, the declaration of capital gains on the sale of digital assets is made to the tax authorities using form n ° 2086 .
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