Cryptocurrencies are the in-thing of 2017 and it will be even bigger in 2018. Bitcoin has surpassed $20,000 a token and altcoins have grown so much as well. As Bitcoin is way too expensive now, most small time investors may not be looking at Bitcoin. They’ll go for altcoins because of the potential of higher returns. There are some things a new altcoin trader should know which will be highlighted in this article.
Why altcoins and not Bitcoin? Assume that you get into Bitcoin at $20,000 per piece and somehow it shoots up to $40,000. That would be amazing but then again your gain is only 2x or 100%. There are plenty of altcoins valued at less than $1 per token. The potential for gains is massive! Look at Ethereum. It was 3 cents at one moment and now it’s over $700! That’s probably over 2 million percent profit!
This is why it’s not a surprise if people are just looking for cheap altcoins or even ICOs to invest in. With big potential profits come huge risks. A lot of ICOs are scams and only a number of altcoins will succeed.
Based on my personal experience in investing in some altcoins, here are some things a newbie altcoin trader should know. Do note that it’s not a tutorial on reading charts and stuff.
1. Always do your own research on the background of the altcoin
You will see everyone recommending coins that they bought on the internet. Just because someone says a particular coin will jump 100,000%, it doesn’t mean you should just listen and buy.
Always do your own research. That’s one of the most important things. Here are some things that you should look at before investing in an altcoin:
- Who is the team developing the tokens? Are they trustworthy and do they have previous experience with other coins?
- Are the developers actively developing the coin?
- Are they totally transparent with the community / investors and are they always open to communication? Can you chat with them regularly?
- What is the technology behind the coin? Is it blockchain or Tangle or etc.?
- What features are they bringing in with the coin? Is it better than the other coins technologically? Are they faster in transaction speed and comes with zero fees?
- How many coins have been pre-mined and how many are the developers holding?
- What’s the supply of the coins? Is it limited or potentially unlimited? How many of the coins are already in circulation?
- What are people’s opinions about the coin?
- Is the team marketing the token aggressively?
- Do they have a lot of bugs?
- How much are they worth now and how much was it worth before?
There are plenty of factors to be taken into account. For e.g. if the price has shot up tremendously in a span of few days, I wouldn’t invest in it. I’ll wait for it to drop since prices fluctuate a lot.
2. Sometimes it’s just good to HODL
There are two types of altcoin investors, i.e. the day trader and the hodl-er. For those who don’t know, hodl is misspelled on purpose and it became popular because it was an attempt to get people to hold onto their coins, rather than panic sell. It’s one of the soundest advice yet.
I’ve held onto my altcoins and resisted the temptation to sell for a small profit. They have all increased much more over time and my crypto portfolio is slowly expanding.
If you’re a day trader, you’ll probably be moving your funds here and there to make profits, but not everyone can do that. I prefer to just keep it knowing its potential and one day it grows tenfold or more.
A lot of investors have this FOMO (fear of missing out) and they do panic selling when the price is low or buying when the price is super high.
The best tactic in making gains on altcoins is to basically buy low and sell high. It’s that simple. Holding on to your coins may actually be the toughest thing considering the market temptations.
3. Buy low, sell high
This is basically the easiest tip yet many people failed to incorporate this. Whenever you look at a token, always check the price history. See if it’s risen like crazy and find out the reason behind it. Was it a partnership with Microsoft? Or did they introduce something new to cryptocurrencies in general?
If there isn’t anything significant, chances are the price will dip again. When it does, buy it when it’s low. Buy the dip they say.
When people spread FUD (fear, uncertainty and doubt) in the news, prices of all tokens will naturally drop due to insecurity. When it does, I see it as a huge discount or sale rather than as an ominous thing. If the coin has potential, it can drop in price but I know it will rise up in the future. It’s all about the potential in the token.
Always do your own research rather than just listen to news online. Similarly, don’t just read my articles and invest. Do your own research!
4. Don’t store your coins on exchanges when you’re not trading
This is a big tip for newbies. It’s simply not safe to store your coins long term in exchanges. Only deposit the coins when you’re going to make the trade and once you’re done, withdraw those coins into your personal wallet.
This is because exchanges can be hacked at any time or the owner can go rogue. Look at the Mt. Gox exchange a few years back. The cryptos stored on the exchange was wiped out and all of the users lost their coins.
Which brings me to the next point.
5. Get your own wallet!
The best wallet is a hardware wallet like Trezor (affiliate link) or Nano Ledger S. As it’s kept offline and away from PCs, I doubt it can be hacked.
The second best alternative is perhaps a desktop wallet. Most coins have their own official wallet that you can use. The private keys / password / seed / keystore / other identification) should be kept offline. It’s to prevent others from getting your keys via malware or keylogger or other types of viruses.
6. Always think of the exchange fees
It would be undesirable for an altcoin trader to make some paper profits and then lose them on exchange fees. For e.g. if Bitcoin has plenty of transactions at the moment, the miners will impose a higher fee and thus the fees are pretty darn high. Sometimes it takes more than 10% away from my amount, which is ridiculous.
Always see how much each exchange is charging (fees) and later decide which exchange to use. Don’t lose money for no reason.
7. Join more altcoin trading communities
There are plenty of altcoin communities on the net. Go look at Reddit or Steemit and you’ll find plenty of cryptocurrency related discussions. Everyone’s recommending the coin they invested in. Get different point of views and look at debates to see if a coin is really viable.
The benefit of joining these communities is that you get to learn a lot, and on top of that, you get the latest news that will affect prices and sometimes new ICOs. Some ICOs give out airdrops first, i.e. free tokens for signing up and referrals to spread awareness about their ICO.
That said, always remember to do your own research as an altcoin trader.
In a nutshell
As an altcoin enthusiast, I naturally recommend buying altcoins considering the entry to Bitcoin is way too high for myself (even if I can buy in satoshis). Whether you like Bitcoins or altcoins or both, always invest at your own peril. Do your own research and don’t invest more than you can afford to.
Disclaimer: This article is not to be taken as an investment or financial advice of any sort.