How much should I invest in Bitcoin?
The crypto industry moves at a breakneck pace, and while no one can predict exactly how things will play out in space, many would agree that Bitcoin adoption will continue to increase.
With value increasingly backed by adoption and recognition, more institutional money will flow into cryptocurrencies in the future. However, for those brave enough to jump right in, maximizing profits depends on leveraging the best trading infrastructure available and getting key information about the industry.
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Cryptocurrencies have huge profit potential, but it is still advisable to test the depths of the water before diving. Crypto prices are still volatile and susceptible to speculation even though they have improved in several areas in the last decade.
The ideal amount that an investor should put into a cryptocurrency depends largely on their tolerance for risk and their financial capacity to absorb losses. Most asset managers who use crypto for multiple clients still recommend small allocations, around 0.5-1% of the total portfolio. Given that cryptocurrencies are only worth 0.5% of global stocks and bonds, anything above 2% seems aggressive.
Those who feel confident in taking on the risk should start with a small amount and buy a fixed amount of cryptocurrency at regular intervals until they accumulate enough crypto assets to meet their targeted quota. This crypto investment method, called Dollar Cost Average, reduces the likelihood of buying crypto at high market prices.
Additionally, having solid knowledge of the crypto world and adequate exposure to best practices in the industry goes a long way in managing the risks posed by this volatile asset class.
Should I diversify cryptocurrencies? Some cryptocurrency enthusiasts prefer Bitcoin because of its superior network size and prime mover advantage. Some have taken lessons from the dot-com boom and opted to wait for another crypto project in the future.
Since scams are common in the crypto space, it is wise to do adequate research and invest a small amount in a relatively unknown cryptocurrency.
In a PwC report, 92% of crypto hedge funds trade Bitcoin; 67% are interested in Ethereum, while 34% and 30% trade Litecoin and Chainlink respectively. The report also notes that some of the altcoins considered by the hedge firm are far more popular than market caps indicate.
To maximize crypto diversification, it is important to know the major industry players and understand the relationship between Bitcoin and macro fundamentals, while recognizing Bitcoin sentiment and its relation to other crypto assets through price cycles.
However, the history of Bitcoin is too short and there are too many variables that can make it difficult for traders to predict price action with good accuracy.