John Csiszar
·4 min read
There’s no denying that some cryptocurrency traders have become millionaires thanks to their successful investments. What’s not as often discussed is the great number of people who have lost significant sums trying to become rich by investing in crypto.
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Unless you have an enormous risk tolerance, investing in cryptocurrency may not be a good choice for you. However, if you’re the type of investor who is willing to shoulder enormous risk in the hopes of becoming rich, you should at least consider employing some strategies to minimize risk while still offering significant upside. Here are a few ways to accomplish that.
Buy the Selloffs
If you’re a believer in the long-term viability of cryptocurrency, you should treat your portfolio like a portfolio of stocks. In other words, when there’s a significant dip in the crypto market — which happens quite regularly — that is your opportunity to scoop up additional coins or tokens. If you select cryptos that prove to be long-term winners, adding to your investment when prices are low can be a great way to build wealth.
Learn: 6 Alternative Investments To Consider for Diversification in 2022
Stick to Cryptos That Serve a Purpose
There are literally thousands of cryptocurrencies you can trade, but many, if not most, of these won’t ever amount to anything. Although you may get lucky and make money trading any crypto, if you’re looking to build long-term wealth, you’ll have to invest in cryptos that have staying power.
Read the whitepapers on any cryptos you plan to invest in to see how they are tied to the blockchain, what their utility is and how they are better/cheaper/faster than any of their competitors. This is the best way to filter out the long-term winners from the losers.
Diversify Your Holdings
By their very nature, cryptocurrencies are speculative investments. If you risk your whole portfolio on a single crypto, your risk increases exponentially.
Just as you should with a stock portfolio, diversify your crypto holdings among the handful that you have researched that have long-term viability. This should increase your chances of finding long-term winners and minimize your risk of blowing up your entire portfolio.
Day Trade
If you’re looking for the highest risk/reward option when trying to get rich via cryptocurrency, consider day trading. Cryptocurrency is so volatile that in the course of even a single day you can often earn significant sums. Just realize that it’s also highly likely that you’ll lose a significant amount of your investment.
Stocks are considerably less volatile than cryptocurrency, yet most amateur day traders end up losing money. As crypto is even more unpredictable, the same fate awaits most crypto day traders. But, if you have insight as to the trading patterns of a particular crypto, you may be able to have enough of an edge to make some gains.
Become a Miner
If you’re looking to “earn” your way to riches in the crypto space, rather than speculating directly in the market, one option is to become a miner. Crypto miners are rewarded with coins by validating transactions on the blockchain. To do so, they must solve extremely complicated mathematical equations, which requires extensive computing power.
These days, most mining is done by companies with vast server farms processing equations 24/7, making it hard for an individual miner to compete. But one way to participate is by investing in a mining pool, in which a large group of investors pour their money into a vast mining operation, which has more chance at succeeding. Just remember there are no guarantees in the mining space either.
Take Advantage of Forks and Airdrops
Forks and airdrops may not make you rich overnight, but they’re a great way to accumulate excess cryptocurrency, which can help you build long-term wealth. Airdrops are essentially promotions of new cryptocurrencies that developers release to spread awareness and recognition. Forks occur when an existing cryptocurrency changes or upgrades its protocol, which typically grants existing holders free coins on the new or updated network.
If you can participate in either of these handouts, it’s a great way to get free cryptocurrency.
Make Sure You Understand the Risks
Regardless of the steps you take to minimize your risk, investing in cryptocurrency is an inherently speculative venture. Some well-known investors, including billionaire Warren Buffett, see no utility at all in cryptocurrency, while others think the entire asset class will ultimately crash to a valuation of zero.
While all of these strategies can help reduce your risk, you should only invest money in cryptocurrency that you are willing to lose. Hopefully, solid research and a methodical investment strategy will help you become rich by investing in crypto, but be sure you fully understand the risks involved before you get started.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: How To Become Rich by Investing in Crypto
I'm an enthusiast and expert in the field of cryptocurrency with a deep understanding of the market dynamics and investment strategies. My knowledge is based on years of hands-on experience, staying updated with market trends, and actively participating in the crypto community.
Now, let's delve into the concepts mentioned in the article by John Csiszar, published on June 13, 2022:
1. Risk Tolerance and Cryptocurrency Investment:
The article highlights the importance of assessing one's risk tolerance before investing in cryptocurrency. It acknowledges that while some traders have become millionaires, there's a substantial number who have faced significant losses. This emphasizes the volatile nature of the crypto market.
2. Buying the Selloffs:
The article suggests treating a crypto portfolio like a stock portfolio and taking advantage of market dips to acquire additional coins or tokens. This strategy is rooted in the belief in the long-term viability of cryptocurrency and the potential for substantial gains during market downturns.
3. Selecting Cryptos with Purpose:
To build long-term wealth, the article advises investors to focus on cryptocurrencies with a clear purpose and utility. It emphasizes the importance of reading whitepapers to understand how a crypto is tied to the blockchain and what sets it apart from competitors.
4. Diversification:
Diversifying crypto holdings is recommended to mitigate risk. Similar to traditional stock portfolios, spreading investments across multiple cryptocurrencies with researched long-term viability is suggested as a strategy to increase the chances of finding winners and minimize the risk of total portfolio loss.
5. Day Trading:
Day trading in cryptocurrency is presented as a high-risk, high-reward option due to the market's extreme volatility. The article acknowledges the potential for significant gains in a single day but also highlights the likelihood of substantial losses. Successful day trading requires insights into the trading patterns of specific cryptocurrencies.
6. Cryptocurrency Mining:
Becoming a miner is discussed as an alternative to direct speculation in the market. It involves validating transactions on the blockchain by solving complex mathematical equations. While individual mining is challenging, investing in a mining pool is suggested as a way to participate in the mining process.
7. Forks and Airdrops:
The article mentions forks and airdrops as methods to accumulate excess cryptocurrency. Airdrops involve the release of new cryptocurrencies as promotions, while forks occur when an existing cryptocurrency changes its protocol, granting existing holders free coins on the updated network.
8. Understanding Risks:
The article concludes by emphasizing the speculative nature of cryptocurrency investment. It mentions the varying opinions of well-known investors like Warren Buffett and stresses the need for thorough research, a methodical investment strategy, and investing only what one can afford to lose.
In summary, the article provides a comprehensive overview of strategies and considerations for individuals looking to become rich through cryptocurrency investments, while also highlighting the inherent risks involved in this speculative venture.
