Crypto is confusing, but it’s also here to stay. The world is adjusting to the ideas and near-infinite potential of blockchain-backed digital currency, with businesses and even entire countries jumping on the bandwagon.
Investors are also faced with the question of how to incorporate this volatile source of wealth into their portfolios. One can simply look at the investing carnage that took place in early 2022 to realize how erratic crypto markets can be.
With that in mind, here are a few tips to help you wield crypto as an effective part of your investment strategy.
1. Set Expectations
Before we get into specific tips, it’s important to cover the number one rule of crypto investing: set expectations. There is no end to the number of people who claim to have made “X-thousand percent” gains in a matter of weeks or months.
And it’s true, those success stories exist. But it’s becoming increasingly difficult to find explosive investments of that nature.
As the crypto craze starts to settle down and more predictable patterns are emerging, it’s important to both set and temper expectations before investing. Detach from emotional thinking and setting unrealistic goals. Instead, treat cryptocurrency as just another possible way to help you earn more money when wisely investing over time.
2. Look for Alternative Crypto Options
Along with diversifying within your crypto portfolio, you can also spread your cryptocurrency wealth to other areas of investment.
Innovative companies like RedSwan CRE are tapping into the power of tokenized real estate. This allows investors to transition unstable crypto earnings to a digitized and fractionalized form of ownership in one of the most stable investing markets: real estate. Given the current economic environment, trust has been lost in different areas that involve crypto. However, diving into different areas of crypto will allow you to find more stable investments that are backed by real assets — making the investor more comfortable and the investment more secure.
3. Limit Your Investing in Crypto
As with all investments, it’s important to put parameters in place to help you maintain emotionless decision-making over time. The historical rise and fall of meme coins like Dogecoin (DOGE-USD) and Shiba Inu (SHIB-USD) are good examples of the need for limits.
First, Dogecoin and Shiba Inu saw meteoric rises in recent years. During the upswing, many investors got carried away with the massive returns that the coins realized for investors. Eventually, though, crypto markets cooled. Then they dropped. When that happened, the overperforming meme coins were amongst the cryptocurrencies that took the fall on the chin.
What’s the takeaway here? Treat cryptocurrency as a volatile investment option with lots of risk and plenty of upside. Always limit how much you’re willing to invest and stay diversified.
4. Spread the Wealth
As you invest in crypto, avoid the temptation to “put all of your eggs in one digital basket.” For instance, if you find an obscure altcoin — that is, any cryptocurrency that isn’t Bitcoin (BTC-USD) — that you think has a lot of potential, don’t put every penny into it. Even if you think it is going to the moon — that’s crypto-speak for increasing in value rapidly — there are many instances where those projections prove to be false. Therefore, pouring your life savings into a digital currency could be disastrous.
Instead of treating crypto as an all-or-nothing night at the casino, spread the wealth. Purchase different cryptocurrencies with various levels of risk and reward.
A good way to check if you’re doing this right is to compare your behavior to your other investing activities. Do you spend all of your money on a single stock? Do you only buy one piece of real estate and ignore all other options?
Chances are you diversify your investments to protect them. Do the same with crypto. Bitcoin is a more stable option. Ethereum (ETH-USD) has also had great adoption and you can use it in many alternative ways. Other altcoins and meme coins possess fun boom or bust potential — when you put limited amounts of cash in them.
5. Always Connect Coins to Reasons
Whenever you go to purchase a cryptocurrency, consider what your motivation is for buying that token. If you read an article about how the token’s growth exploded in the past and that’s your only reason for buying, you may want to think twice.
Instead, always look at a token’s history, utility, liquidity, and other key factors that show you whether or not it’s worth investing in.
For instance, Decentraland’s (MANA-USD) MANA token is an altcoin with high utility because it functions as the primary currency of Decentraland. This makes it a frontrunner crypto for the emerging metaverse, which may end up giving the token incredible value down the road.
Crypto is going to be a key investing option going forward. However, investors need to find ways to incorporate it into their strategies without turning their portfolios into nothing better than a roulette wheel. Use these tips to make sure you’re getting the most out of your crypto investments both now and in the future.
On the date of publication, John Rampton did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
John Rampton, the founder and CEO of Due, is an entrepreneur and connector. While recovering from a serious construction accident when he was 23, he studied how to make money work for you, not against you. He has since written many articles about finance, entrepreneurship and productivity.