Whisper it: Cryptocurrency is having something of a revival after almost two years in the wilderness. After the highs of 2021, when the market topped at $3 trillion, the sector went into a deep decline, nicknamed the Crypto Winter. This decline was accelerated by problems within the industry, notably the collapse of major exchanges like FTX and the implosion of major cryptocurrency projects like Terra Luna.
However, towards the backend of 2024, the global crypto markets started booming again. Around $500 billion flowed into the markets across September to early December, and alongside that, the euphoria of the markets. There are some tangible reasons for this boom, which we will discuss below. Yet, our main concern here is to provide a guide to what’s happening, warning you of some of the pitfalls. As the crypto narrative grows again, retail traders and investors are expected to flow into the sector again. So, if you are interested, here are some dos and don’ts:
Do Your Own Research
The crypto industry is still largely narrative-driven. The price of oil, for instance, might go up or down due to tangible geopolitical factors. Crypto, however, is largely based on narratives. For example, those investing and trading in Bitcoin shown on AvaTrade, know right now that the price is being driven upwards (it’s up around 150% since the beginning of the year) by the expectation of hedge fund ETFs being approved in the United States. Those following that narrative of “institutional adoption” by behemoths like BlackRock have ridden a wave this last six months as BTC’s price soared. Regardless, you should always do your own research beforehand to identify certain trends. From potential Ethereum (the second largest cryptocurrency by market cap) ETFs to the worldwide adoption of Chainlink, you may be able to identify the next one.
Bitcoin is up over 150% in 2024. Image Source: Trading View
Don’t Invest What You Can’t Afford to Lose
As crypto begins to explode again, many investors will start piling in again – it’s human nature. However, the volatility of the asset class is still one of the biggest risks. Traders can benefit from volatility, as they can make money regardless of whether the market goes up or down. But those looking to make their fortune by holding crypto should be aware of the boom and bust nature of the sector. Advice by most traditional financial managers is to hold no more than 5% of your investments in crypto. It may be tempting to put in more as you watch the green candles shoot up on the charts, but you’ll be protecting yourself from potential ruin.
Do Technical Analysis
It’s all too easy to say that crypto is somewhat crazy and does not follow the rules of other asset classes. That’s partly true, but it is also maturing, and you can make a profit as a trader by understanding trading signals like moving averages. This is more prevalent for established cryptocurrencies like Bitcoin and Ethereum but not so much for newly launched meme coins. At the very least, try to learn a bit about “tokenomics”. For example, if a cryptocurrency has a supply of trillions of coins, then it is probably not going to hit your target of fifty dollars, as the market cap (the number of coins and their value) would be unattainable.
Don’t Get Sucked Into the Bubble
As mentioned, crypto is often about narratives, and a lot of that narrative is fuelled by social media sites like Twitter/X and YouTube. Influencers will make a fortune by promoting projects, and it will almost always suit their strategy to create a narrative of euphoria. Traders need cool heads. And as we said, doing your own research is superior to what you read and hear from influencers. In saying that, there are some authoritative voices on social media who provide real analysis and insightful trading advice. The trick is to find those who know what they are talking about and ignore the rest.
Do Take Profits
There is a saying in crypto that holding a coin is easy, but actually forcing yourself to take profits is not. The problem is that many of us are conditioned to think “just a little bit more”. If a coin has already done a 10X, why not 15X or 20X. The smart crypto investors will have a plan to start taking profits. After a while, they may take out their initial investment. Later, they may remove 10%. And another 10% after that. Create a plan and stick to it. This is the way to improve your net worth, not holding onto coins forever.
Don’t Forget About Security
Beyond the volatility of crypto, there is another risk – security. Unfortunately, the sector is still blighted by hacks and scams. Although, if you take the steps to protect yourself, those risks should be minimal. You should only trade with respected and licensed crypto platforms. And if you hold your coins in a wallet, never connect that wallet to unknown sources or click on unknown links. Try to use 2FA on your accounts too.
Do Practice with a Demo Account
If you are going to trade crypto for the first time, it might be worth using a demo account to get the hang of things. A lot of top trading platforms allow you to use demo accounts to practice, letting you experience the highs (and lows) of trading in real time. More than anything, it can give you an insight into the ebb and flow of the markets, helping you get the experience without risking your capital.