Things to consider before buying your first crypto

Cryptocurrencies are used for various purposes, including online purchases, remittances, and as a means of transferring value across borders. They are also used as a store of value or a digital asset held for investment purposes. If you are considering investing in cryptocurrency, you should keep in mind that there are thousands of cryptocurrencies, with new ones being created regularly. Each one of them operates on its own technology and has its own unique features and various use cases.

Therefore, it is highly advised to conduct comprehensive research before investing in cryptocurrency to make informed and responsible investment decisions. You should first spend the needed time to educate yourself and get a solid understanding of what cryptocurrencies are, how blockchain technology works, and the specific cryptocurrency you intend to invest in.

Research exchanges

Researching exchanges is a crucial step before investing to make informed investment decisions and mitigate risks. Before investing in cryptocurrencies, you should find a trustworthy and secure platform that aligns with your trading goals and preferences, considering the following:

1. Security: Try to find a reputable exchange with strong security measures. This can help you protect your investments since the cryptocurrency market has witnessed numerous hacking incidents and frauds. To reduce the risk of losing your assets, you should research the security features of the exchange, such as two-factor authentication, insurance coverage, and cold storage for funds.
2. Regulation: Make sure that the exchange you choose complies with the relevant laws in your region to avoid potential asset freezes or legal issues.
3. Liquidity: If you want to execute trades more easily and with less slippage, try to choose a big and established exchange because such exchanges typically have higher liquidity, which is essential for buying and selling cryptocurrencies at the desired prices.
4. Supported cryptocurrencies: Ensure that the exchange you select supports the specific cryptocurrencies you are interested in buying or trading.
5. Fees: Before choosing an exchange, compare fee structures to find an exchange that aligns with your budget and trading strategy because exchanges charge different fees for withdrawals, trading, and other services.
6. Withdrawal limits: Since exchanges may impose withdrawal limits on accounts, make sure that such limits align with your trading and withdrawal needs.
7. Verification requirements: Some exchanges require users to complete identity verification (KYC) procedures. Make sure to understand it and how it may affect your trading ability.
8. Customer support: Check if the exchange you choose offers customer support through multiple channels and evaluate its responsiveness because adequate customer support can be essential in case you encounter issues with your account or transactions.

Choose a method for storage

When you buy and store cryptocurrencies, you can keep them on an exchange or in a digital wallet. There are different types of wallets, each with its own benefits, security, and technical requirements, which makes researching the method of storage a crucial issue before investing:

Types of Wallets

• Hot wallets: A hot wallet, also called a software wallet, offers online storage that you can access from your phone or computer. But it has a security risk because it’s stored online and is more susceptible to cyber-attacks.
• Cold Wallets: You can store your cryptocurrencies in a cold wallet, also called a hardware wallet, without connecting to the internet; or in an external device such as a USB drive. You’ll receive a keycode to keep in a safe place, but if you lose it, you may lose your cryptocurrencies.
• Paper Wallets: They are physical documents containing your public and private keys; they are usually considered cold storage and immune to online hacking.
• Custodial Wallets: They are provided by cryptocurrency exchanges or third-party services. Although they offer convenience, they are characterized by security trade-offs.
• Multi-Signature Wallets: They require multiple private keys to authorize a transaction, providing added security.

Security and risk mitigation

You should keep in mind that cryptocurrencies are digital assets, so they are susceptible to theft if you don’t store them securely. If you select the right storage method in advance, you can take some measures to protect your investments from hacks and unauthorized access. However, different storage methods have varying levels of risk. For instance, compared to using a hardware wallet or cold storage, keeping your cryptocurrencies on an exchange carries a higher risk of loss in case of hacks or exchange shutdowns.‍

Backup and recovery

Make sure to have a plan for backup and recovery in case you lose access to your wallet or private keys. Try to understand the different backup procedures of storage methods to save yourself from potential losses.

Diversify Your Investments:

Diversifying your investments is an essential principle of risk management in all investments, especially in cryptocurrencies because they are known for their high volatility. By diversifying your investments across different cryptocurrencies, you spread the risk. In that sense, your overall portfolio may be less impacted if one cryptocurrency experiences a severe decline.

Additionally, diversifying your investments gives you exposure to a range of blockchain technologies, allowing you to participate in the potential success of multiple projects, and reducing the risk of choosing a single, underperforming cryptocurrency.

Moreover, diversifying your investments helps you mitigate the uncertainty that characterizes the cryptocurrency market. This strategy can also enhance your liquidity, as it allows you to access funds from different assets when needed without relying on the liquidity of a single asset.

Potential risks

1. Volatility: Unlike traditional fiat currencies, virtual currencies derive their value solely from market supply and demand, leading to substantial price volatility that can yield massive gains or losses for investors. You should diversify your investments and conduct comprehensive research to take the right steps when trading.  
2. Regulations:  Additionally, cryptocurrency investments have fewer regulatory protections compared to traditional financial assets such as stocks, bonds, and mutual funds. The cryptocurrency market can be influenced by regulatory changes at any time. So, make sure to keep up with the regulatory landscape in your region to avoid potential legal issues. Governments and regulatory bodies are still figuring out how to regulate cryptocurrencies; changes in regulations can have a significant impact on the market. Additionally, the lack of regulation can make the market susceptible to scams, fraud, and market manipulation.
3. Market sentiment: The prices of cryptocurrencies can be influenced by market sentiment, social media, and news. This can lead to irrational price movements.

While the potential for significant gains in the cryptocurrency market exists, it's equally important to be aware of the inherent risks, including regulatory uncertainties, price volatility, and the influence of market sentiment. Investing without fully understanding the technology or the specific assets you are buying can lead to poor investment decisions, but taking a well-informed and cautious approach can help you navigate this exciting but unpredictable investment landscape. Therefore, it is fundamental to conduct thorough research, diversify your investments, and only invest what you can afford to lose. You can also consider seeking advice from financial professionals before investing in cryptocurrencies.