In the world of finance, crypto assets have emerged as a potential investment vehicle. While navigating the crypto market can be tricky, investors can simplify the process by defining a strategy and executing it without worrying about day-to-day market volatility.
We provide valuable tips to help investors maximise their crypto investments in a safe way. The tips are divided into three sections – investing, holding, and safeguarding.
Investing
Set clear investment goals – Establishing clear investment goals is essential for success. Determine your risk tolerance, investment horizon, and desired returns. Crypto investments can be fruitful long-term, so align your investment strategy accordingly. Setting realistic goals and regularly reviewing them will help you stay focused and reap value over time.
Embrace diversification – Diversifying across various asset classes is an important principle of successful investing. Crypto is volatile and a higher beta asset – hence it should hold a minimal share of your overall wealth portfolio (we suggest 2-5 per cent). Invest a majority in blue chips – Bitcoin and Ethereum – as they offer good returns with lower risk over longer timeframes.
Conduct thorough research – Before investing in any crypto asset, spend time researching the project’s fundamentals, scalability, technological innovations, development team, market demand, and competitive landscape. Read whitepapers, explore online communities, and stay informed about the latest news and updates.
Cost average your buys – Timing the market is difficult, even for experienced investors. Cost averaging by timing your buys at regular intervals helps you invest with peace of mind. This approach helps mitigate the impact of short-term price fluctuations.
Holding
Play the waiting game, emotionally – Once you have built a portfolio, allow time for it to grow. This is a multi-year effort and sometimes can be taxing emotionally. Refrain from acting in haste – stay away from looking at your portfolio regularly.
Take some profits at targets – Ensure each of your investments has a target price. Don’t shy away from taking some profits once these targets are achieved. This helps in ensuring gains even in a volatile market.
Switch to long-term investing and wealth creation mindset – Avoid frequent trades. Stay committed to your portfolio.
Safeguarding
Trade in recognised Indian exchanges – Global exchanges do not adhere to the Indian government’s requirements of KYC or TDS deduction, so place all your trades in Indian exchanges that are compliant. This makes it easier to track investments and arrive at your tax liability when you take profits.
Get custody of your funds or park with a recognised Indian exchange – Crypto allows you to hold your funds in a personal (hardware) wallet that is not dependent on any third party. If you find it convenient, hold the assets in Indian exchanges with enough insurance coverage for user funds.
Be vigilant about scams – Always be vigilant about deals that are ‘too good to be true’. Protect your OTP mechanisms and safeguard your profiles. Be careful about every permission you give for your wallets (software-based) when you interact with DeFi protocols. Many scams are ongoing and can take the sheen away from your hard-earned gains.
In conclusion, maximising crypto investments requires a comprehensive approach to personal finance and investment planning. By following key principles, individuals can optimise their investment strategy and mitigate risks.
