5 Tips Before Buying Cryptocurrency for the First Time
in Crypto Tutorials
Once every 3 years or so, because of its inbuilt token economics, the price of Bitcoin tends to soar, and many other cryptocurrencies soar with it.
During these periods, an unprecedented number of new users flood into the space, desperate to grab a piece of the action. But it’s also the most dangerous time to be a crypto investor, for some of the reasons we outline below.
Stay safe, and check out our 5 tips before buying cryptocurrency for the first time.
Tips Before Buying Cryptocurrency: Learn What Bitcoin Actually is and How It Works
We live in an era in which trends seem to come around in ever-quickening cycles, and people are rewarded for acting quickly and jumping onto the next big thing. However, for every person who is able to capitalize on a new technology, there are 10 more who get burned.
Take your time and read up on Bitcoin, to see for yourself why it might be a worthy investment for the future of money. Find out what makes Bitcoin so secure, why its ledger cannot be altered or tampered with, and under what context this innovative new technology came about (clue: it has something to do with bank bailouts after the 2008 economic crisis).
Also, two important messages for Bitcoin rookies:
a) you don’t have to buy one whole Bitcoin, and
b) it’s never too late to buy Bitcoin. Dollar cost averaging into Bitcoin over time has been shown to be profitable, and Bitcoin divides down to 8 decimal places. The smallest unit of Bitcoin (0.00000001 BTC) is called a satoshi, after the pseudonymous founder of the first decentralized cryptocurrency. Many Bitcoin commentators believe that, in the near future, we won’t be talking about exchanging wealth in Bitcoin, but in satoshis. And there are still plenty of those to go round.
Even if you can only afford to buy 0.01 Bitcoin, that still gives you 1 million satoshis.
Tips Before Buying Cryptocurrency: Don’t Panic About Price Drops
Those who jumped into Bitcoin as it was shooting up in late 2017 were probably also the ones who panicked when the price started to tumble in early 2018. Being too focused on market movements (and perhaps not educated enough on the long term potential of Bitcoin), they panic sold at a loss.
From 2018-2020 however, even with an extended downward trend in the market, crypto developers continued to build new projects, and to shore up existing ones. A perfect example of this is the flourishing world of DeFi (decentralized finance).
DeFi protocols like Aave, Maker and Instadapp, which enable anybody in the world to have easy and permissionless access to financial instruments, already hold over 94 billion dollars worth of locked value (according to website DeFi Pulse at the time of writing).
Price volatility makes crypto risky in the short term, but it is also what can make crypto profitable in the long term, so long as you can keep your head and hold onto your convictions.
Tips Before Buying Cryptocurrency: Be Careful Who You Listen To
Those energetic influencers online who tell you about an incredible new coin with 1000x potential? Many of them are being paid by the founders of the project to help pump up the price of the coin by “shilling” it to investors with limited knowledge.
With crypto still being “The Wild West” of finance, social media influencers can still dispense investment advice without declaring their sponsors or being “certified” advisors. And investors should also be wary of any crypto project that pays shillers to market for them, as it could mean that they have no genuine use case, or even worse, that they’re planning to dump their holdings as soon as the price has been artificially increased.
This is why new investors should be wary of the many different crypto altcoins. If you only know about a crypto project because the hype found you on social media, perhaps it’s because the team doesn't have enough confidence in their own product, and feel like they need to launch marketing campaigns in order to encourage people to speculate on their coin or token.
Tips Before Buying Cryptocurrency: Do Your Own Research
This is a much-repeated mantra of the crypto community, but the main distinction is that simply watching YouTube videos and reading the website of a cryptocurrency project does not qualify as “doing your own research.”
Most cryptos that exist now (11,000 and counting) will one day become defunct “vaporware” ecosystems with no use or activity. Many have done so already (here’s looking at you, Bitconnect).
It’s true that, with a lot of research and a few lucky, shrewd investors can find some real diamonds in the altcoin space, and even come find crypto projects that offer a much higher potential upside than that offered by buying Bitcoin.
But another piece of advice for crypto rookies: just because an altcoin has a lower price than Bitcoin doesn’t make it cheaper, or a better investment. The value and popularity of a cryptocurrency is judged more by its “total market cap,” which is the amount of coins in circulation, multiplied by the value of the coin. Many cryptos have a much higher total supply of coins than BTC, which opens them up to larger levels of inflation, especially when a large percentage of the coins are still to be released.
If you wish to study other crypto projects, ask yourself what the use case is for this project? What problem does it wish to solve? What are the credentials of the team behind the project? If they are anonymous, what’s the logic behind this decision? How do the token economics of the project work, and how do the team intend to protect the value of investor funds? Is developer activity on the blockchain growing, and does the team engage regularly with the online community? What rights does ownership of the token give to holders?
Tips before buying cryptocurrency: Not Your Keys, Not Your Bitcoin!
There are two different kinds of exchange in crypto: centralized and decentralized.
Centralized exchanges previously benefited from having a better user experience and more liquidity, meaning that trades went through more quickly and closer to the exact market price. Investors were mostly happy to deal with the downsides of centralized exchanges, such as having to submit ID & personal information before they can begin trading, or the risk of hacks/security breaches as a result of the storage of private keys on centralized data servers.
Recently though, DEXes, (or decentralized exchanges), which are run on nodes that are distributed all around the world and are designed to have no single point of failure, have made huge improvements in their usability and found novel ways to increase their liquidity.
DEXes like Uniswap, Sushiswap and Curve Finance have caught up with centralized exchanges in terms of the amount of trades they accommodate. On a DEX however, like with the Exodus wallet, no programmers or project founders have access to your account, which means that you alone are responsible for the safekeeping of your private keys.
This may sound daunting, but all it takes is changing a few habits in terms of how you interact with the internet.
When creating your new wallet, make both a digital and a paper back-up for any passwords or seed phrases. And if you keep some of your assets in a centralized exchange, make sure it is a trusted exchange with a long track record of safety, like Coinbase, Kraken, or Binance.
Remember, if you don’t have the keys, it’s not really your wallet!
We hope that you enjoyed this article, “5 Tips Before Buying Cryptocurrency for the First Time”. For more informative content, subscribe to the Exodus blog.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.