What Are the 4Ws of Investing in Cryptocurrency

4 Ws

Before delving into the cryptocurrency market, you can use the 4Ws as a framework to assist you construct a better approach. The framework is built on four pillars: WHY, WHAT, WHICH, and WHERE. Let’s get started!

But first, this article is about investing. There is a significant distinction between trading and investing. Although the concept can be extended to trading, the information provided gears toward investing. Keep that in mind when you read this through your trading goggles.

W1: WHY are you Interested in Investing in Cryptocurrency?

This is a vital question to answer. Many traders enter the market expecting to make a fortune in a matter of months. During bull markets, cryptocurrency might feel like a gold mine in the late 1840s, when everyone was clamoring to get their hands on the gleaming nuggets.

It is critical to have a compelling answer for why you want to invest in cryptocurrency, especially beyond purely financial reasons. This will help you keep on to your investments over time, even if the rewards are slow to appear.

Many investors believe that cryptocurrency has a future as a payment system or as a hedge against future inflation. Others utilise cryptocurrency to escape the financial system’s ever-tightening grip. If you research what cryptocurrency is before investing in it, one of these responses will almost certainly come to mind.

Finally, keep in mind that everyone invests to make money, but the stronger your response to this question, the better off you will be.

W2: WHAT Is Your Tolerance To Risk?

Investing entails some risk. In contrast to savings accounts with guaranteed interest, your investment may increase in value. But at the same time it may also decrease in value. In exchange, the earnings (when the investment pays off) are often more than the savings account.

Various types of hazards has found , in which some avoidable, while others inescapable. A global recession, for example, will effect practically all of your assets, whereas a single crypto project that fails will have a far lower impact on a well-diversified portfolio.

Diversification is a tool used by investors to protect themselves from individual risks such as “rug pull.” By putting your figurative eggs in numerous baskets, the impact of a single project failing is minimized. Diversification works best when investments are unrelated to one another and dispersed over several markets, such as stocks and cryptocurrency.

To answer the WHAT, you must first choose how much risk you are willing to take and how much money you are willing to risk (and hence potentially lose!).

4 Ws
4 Ws

W3: WHICH coins are you Interested in purchasing?

You already know you want to invest in cryptocurrency and how much risk you are willing to face. The next stage is to decide which cryptocurrencies you wish to buy based on your investment theory. Find initiatives that align with your motivation for entering the crypto space, as well as a few speculative ventures where you can take a little more risk in exchange for higher benefits.

This is an important step in your approach since the decisions you make here will determine the direction of your portfolio in the months or even years to come. Keep your thesis and risk tolerance in mind when putting together a portfolio. It does not have to be rigid, but an investment portfolio performs best when it is left alone.

W4: WHERE — and HOW — Do You Want to Buy Cryptocurrency?

You’ve determined your WHY and WHAT, and you know which tokens you want to purchase. It’s time to decide WHERE (and HOW) you want to buy your cryptocurrency.

First, determine your investment’s time horizon. Do you intend to maintain your investments for several years, or is your thesis only valid for the next few months?

Then you must select at what price point you wish to buy your portfolio. You can buy at market value or wait for prices to fall to a level that you deem a decent entry point. Do you want to buy everything all at once or utilise dollar-cost averaging? Either is OK as long as your explanation is sound.

You’ll also need to decide what you want to receive out of the investment. Where do you draw the line between profit and loss? All of the decisions we’ve just covered will have an impact on the following:

Determine whether you want to get on the chain or use a centralized platform. Centralized exchanges (CEXs) store your cryptocurrency for you and go to considerable efforts to make it safe. Decentralized exchanges (DEXes) are locations where people may transact without revealing their private keys, which means you, the user, are responsible for keeping your currencies safe. Both have advantages and disadvantages.

Once you’ve restricted your search to DEXes or CEXes, it’s time to start comparing platforms to discover one that meets your requirements. Each exchange has its own set of advantages and coin selection. You can then choose whether to keep your coins on the exchange or move them to a cold wallet. If you choose the latter, be sure you know what you’re doing because boating catastrophes are never far away.

The strategy is Complete!

We discussed your motivation for purchasing (or not purchasing) cryptocurrency. And aslo the level of risk you are willing to accept (and how to reduce it). You’ve determined what your portfolio should look like and devised a strategy for purchasing and storing that portfolio. It’s time to get things moving!

Stick to your plans from here on out. You made decisions for a reason, and there’s no point in planning if you don’t stick to it. Best wishes!

Visit us on : www.bitcoiva.com

%d bloggers like this: