How to Invest in Crypto Ultimate Beginner Guide

Lark Davis

Introduction to Crypto Investing

Crypto investing can be a lucrative but risky endeavor. To navigate this space, understanding the basics is crucial.

Understanding Altcoins

Altcoins are alternative cryptocurrencies to Bitcoin. They can be categorized into:

  • Layer 1 blockchains: Complete blockchains with their own tokens, like Ethereum and Solana.
  • Layer 2 blockchains: Scaling solutions built on top of layer 1 blockchains to allow for faster and cheaper transactions.
  • Layer 3 blockchains: Built on top of layer 2 blockchains, focusing on more app-specific uses.
  • Utility coins: Coins with specific uses, such as oracles (Chainlink), storage coins (Filecoin), and privacy coins (Monero).
  • Meme coins: Coins with no utility, trading based on hype and speculation, such as Dogecoin and Shibainu.
  • Gaming tokens: Connected to Web3 games.
  • AI coins: Related to artificial intelligence projects.
  • RWA (Real World Assets): Bringing real-world assets onto the blockchain, such as treasury bonds, gold, or real estate.

Market Cycles

Market cycles in crypto are largely driven by human emotions of fear and greed. Understanding these cycles is key to making money.

  • Accumulation phase: Buying during periods of fear.
  • Bull market: Holding as sentiment shifts.
  • Distribution phase: Selling into retail greed.

Signals for Buying and Selling

Buy signals include:

  1. Social signals when everyone thinks crypto is dead.
  2. When no one wants to hear about crypto.
  3. Chart indicators flashing oversold signs.
  4. The market ranging at lows.
  5. Markets breaking out of the range.

Sell signals include:

  1. Crypto hype is everywhere.
  2. Crypto accounts posting about buying luxury items with their gains.
  3. Friends and relatives asking for crypto advice.
  4. The Coinbase app is the number one app in the app store.
  5. Technical indicators flashing overbought signals.

Getting Started with Buying Crypto

The easiest way to start is by buying Bitcoin. You can use centralized exchanges like BitUnix, Crypto.com, or ByBit.

  1. Sign up for an exchange.
  2. Complete KYC (Know Your Customer) if required for fiat purchases.
  3. Buy crypto.

Moving Crypto Off the Exchange

To interact with the blockchain, you need to move your crypto to a wallet like Phantom for Solana.

  1. Set up a wallet.
  2. Send crypto from the exchange to your wallet.
  3. You can then use your crypto to interact with decentralized applications (dApps).

Finding Good Coins

When evaluating coins, consider:

  1. Tokenomics: Details about the token supply and distribution.
  2. Burn mechanisms and staking: Reduces the available supply, potentially increasing price.
  3. Utility: What the token is used for.
  4. Solid tech: Does the project solve a real problem?
  5. Project documentation: Understand the project's goals and roadmap.
  6. The team and partners: Check their credentials and background.

Managing Risk

  • Make a plan: Decide which sectors and tokens to invest in.
  • Journal your trades: Keep track of entry and exit points.
  • Consider risk tolerance: Don’t invest more than you can afford to lose.
  • Position sizing: Allocate appropriately based on the token’s risk.
  • Use hardware wallets: For sizable holdings to keep them secure.

Common Mistakes

  • Trading without knowledge: Don’t start trading without research.
  • Chasing the market: Avoid buying after a significant pump.
  • Not taking profits: Regularly take profits to secure gains.

Portfolio Building

  • Functionality: What is the purpose of the token?
  • Market opportunity: Is there room for the project to grow?
  • Adoption: Is there growing demand for the project?
  • Tokenomics: Understand the token distribution and supply.
  • Project management: Trust in the team behind the project.

Taking Profits

  • Don’t wait for the top: Sell in intervals as the price rises.
  • Use indicators: Tools like the Pi Cycle Top Indicator, MVRVZ score, and moving averages can help.
  • Consider taxes: Set aside funds for tax obligations.
  • Diversify gains: After a bull run, consider diversifying into other assets like real estate, gold, or stocks to preserve wealth.