How much to invest in cryptocurrency?

If you follow financial news closely, you may already have the impression that every day someone becomes a crypto-millionaire. In fact, everything is not so easy and simple; potentially high profitability is always accompanied by an equally high risk that is not obvious to a beginner. But if you are excited about the idea of investing in crypto and are planning to buy USDT (ERC20) in the near future, do your own research. And your first decision will concern the amount of investment.

How much to invest in cryptocurrency?

Determining the amount to invest in cryptocurrencies is often much more important than even choosing which specific coins to purchase. The amount of investment largely determines what strategies will be available to you.

And first of all, it depends on your financial capabilities. Let’s assume that a fictitious John Rockefeller buys the same fictitious meme-coin like PEPE for several million dollars, this means:

  • The possible loss of investment is not critical for him.
  • He clearly has some kind of plan, but he definitely won’t let you in on this plan.

For a student, even a hundred or two dollars can be a critically significant amount. Well-known financial expert Douglas Feldman believes that investing more than 5% of your total net assets in crypto is not worth it. A more optimistic Eric Finman believes it is reasonable to invest up to 10% of total income in digital money.

See also  Crypto Confidence: The Crucial Role of KYC-Verified Wallets in Secure Transactions

What to consider when deciding how much to invest in cryptocurrency

There are a lot of recommendations regarding the amount of investment in cryptocurrency and they may even contradict each other. To decide on the amount, you should moderate your ardor and analyze a few key points.

Acceptable risk

Determining how much to invest in cryptocurrencies also depends heavily on the level of risk you are willing to accept or your risk appetite. If your risk tolerance is high, you may decide to invest a larger amount. This aspect largely depends on your personal preferences, as some people naturally prefer a cautious approach, while others feel more comfortable taking risky steps.

Age also plays a significant role. A high risk tolerance can be effective when you are young, as gradual market growth over time can offset potential losses. However, for those approaching retirement age, it is better to take a more conservative approach to risk.

Acceptable profit

When planning an investment in cryptocurrencies, it is important to consider both the best and worst case scenarios. Consider your options: What happens if the value of your crypto assets suddenly increases and you make thousands of dollars overnight? How will you act if the market turns against you?

Diversification

The crypto space has coins to suit every taste and budget. The level of risk depends greatly on the coins you include in your portfolio. If your portfolio contains only meme coins and new coins, investing all your savings in them is almost perfect financial suicide. When following high-risk strategies, it is better to limit yourself to a small amount. However, if your goal is to invest in more reliable coins, especially the so-called “blue chip” cryptocurrencies, you can invest more. Moreover, exchange GODS to ETH for portfolio rebalancing is not a problem.

See also  Learn to spread the word: 6 valuable crypto podcasts to expand your knowledge

Investment period

The crypto market is very volatile, so the same actions in different periods give diametrically opposite results. Always study the current state of the market. In a cryptocurrency bull market where prices are consistently high, it makes sense to invest more cautiously. During a bear market, when prices are falling, you may want to consider making additional investments and make greater profits in the next period of market growth.

Liquidity

In other words, how much money do you have readily available in case you need it urgently? And how soon will you need a large amount? It is not technically difficult to withdraw money from the market, but it is not a fact that your desires will coincide with the realities of the market.

Personal budget

If all your income goes entirely to food, housing and other basic needs, it won’t be possible to invest a lot, often or at once. Those who have more money can invest in cryptocurrencies more often and more.

Level of awareness

There are certain trends in the cryptocurrency market. However, it is better to make decisions if you really understand these trends and the characteristics of the assets you are interested in. Investing money in something incomprehensible and unknown is a very bad idea.

How to distribute funds

The golden rule of investors is diversification. If you know nothing at all about cryptocurrencies, but are still determined to invest in them, you can start with the lowest risk option. Buy Bitcoin for 60% of the amount acceptable to you, and Ethereum for the remaining 40. You can experiment later, when you have your own experience and your own vision of the market.