Things to Consider Before Investing in Cryptocurrency in 2023

Investments in cryptocurrencies skyrocketed in 2020 and 2021, and several of the biggest cryptocurrencies reached record highs. After the Fed implemented its economic restrictive measures and investors withdrew from riskier assets, prices started to decline. After that, the market saw several shocks, each of which caused prices to decline further. One prominent instance was the Terra (LUNA) network's collapse, which impacted the market for many months.

Mark Tencaten believes that the worst may be behind us as we approach the new year and question if 2023 is the right year to invest in cryptocurrencies. Here are some queries you should ask yourself before proceeding.

1.    Reserve an emergency fund

Mark Tencaten says that before you invest in anything, whether it's stocks or cryptocurrency, ensure your emergency fund is filled. A savings account with at least six months' worth of spending will protect you from unforeseen disasters like a pandemic or job loss.

The cost of cryptocurrencies plummeted in 2022. Many investors believe that prices will eventually rise again. However, you won't be able to profit from any rebound if you're forced to trade an asset when its value is 80% less than what you bought for it. By setting up an emergency fund, you can access it in times of need rather than liquidating investments or taking on debt.

2.    Invest in long term

According to Mark Tencaten, there are no assurances when it comes to investment, especially with cryptocurrency. But if you trade with a 10 to 20-year time horizon, you can endure even sharp short-term declines like the one we've experienced this year. You must have faith in both the long-term prospects of blockchain technology and the specific projects you purchase in order to achieve that.

Long-term investing entails the extensive study and selecting the ventures with the highest chances of success. The two biggest cryptocurrencies by market cap are Bitcoin and Ethereum, so you may want to remain with those. As you gain experience, you might diversify into initiatives you believe will be useful and have a strong possibility of succeeding in the future.

3.    Plan your portfolio

Mark Tencaten claims to be a huge supporter of cryptocurrencies and believes the technology will revolutionize how we handle our online identities and spend money. However, it is now a dangerous and loosely regulated sector that faces significant challenges. In the event that it is unable to do so, investors risk total loss.

Don't invest all of your money in cryptocurrency. Many experts advise keeping your cryptocurrency investments to 5% or less of your total capital, which is a good place to start. In this manner, you can make money if the industry is successful. However, if things go wrong, your finances won't be destroyed.

4.    Plan your funds

Be sincere with yourself about your motivations for purchasing cryptocurrencies and your goals. Many cryptocurrency buyers during the 2021 crypto-frenzy did so out of fear of missing out or a desire to make quick money. Sadly, this led to consumers making purchases close to the highs before fully comprehending what they were doing.

The sum of money you're ready to invest, the kinds of cryptocurrencies you intend to purchase, and the duration of your holding period should all be included in your plan. Additionally, it's critical that you understand your motivation for investing. Why do you think blockchain technology will be successful? What factors could lead you to revise your hypothesis? That information can help you make sound decisions, which can help you avoid panic purchasing and selling.

5.    Understand the risks

Investing in cryptocurrencies is incredibly dangerous. Although there is a chance for larger profits with such risks, you must be aware of what you're entering. Cryptocurrency investing might not be for you if you might lose peace of mind over a 20% decrease in a single day.

 

Here are some unsettling truths regarding investing in cryptocurrencies:

·       Prices for cryptocurrencies fluctuate wildly. Prices can drop sharply in a couple of weeks and might not rise to their previous highs.

·       A cryptocurrency could fail on its own. You may lose all of it if a cryptocurrency you possess crashes or becomes a hoax.

·       Platforms and cryptocurrency exchanges can go under. There are limited consumer rights in effect, so you might be unable to recover your funds if the cryptocurrency exchange you use files for bankruptcy.

 

If you decide to purchase cryptocurrencies in 2023, don't do it with the intention of making money from a rally similar to the one we experienced in 2021. Do it because you know what blockchain can accomplish in the future. But again, follow the golden rule of crypto investment and only make investments you can afford to lose.

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