Investing in the crypto market is very challenging. It seems to defy any rules that apply to other markets, and investors can simply be overwhelmed by the volatility and the technical nature of the market.

It is not without reason that many popular investors and companies are beginning to apportion a greater part of their portfolio to cryptocurrencies. The crypto market may be an unpredictable one, but in the long run, it has proven to be attractive to many individuals.

Many of the golden rules of crypto investing revolve around the idea of minimizing risks. If you’re going to buy crypto, the ideal scenario is that you benefit if crypto prices soar, but don’t face financial disaster if the market collapses.

So, how does one invest in crypto and ensure that they are not left burning? The volatility may be off-putting, but there are some basic rules that you can apply to ensure that you get the most out of your capital. But do keep in mind that nothing is guaranteed, so the age-old principle of investing as much as you can afford to lose remains the top rule.

1. Only Invest Money You Can Afford to Lose

Any successful and reasonable investor will tell you to only invest in as much as you can afford to lose. This applies to all markets, and even more so to crypto, which can see double-digit drops in hours.

The crypto market has seen unprecedented growth in value and just-as-large drops in value. It’s still a nascent market, without regulatory checks and early-stage technical barriers. This can lead to some unfortunate situations, such as hacks, fraud, and a flurry of sell orders that might appear to happen on a whim.

As such, investors should take a small portion of their capital—to reiterate, only as much as they can afford to lose—and budget it toward a select few cryptocurrencies. If you only invest money you are comfortable losing, you won’t face financial ruin if the industry goes sideways.

2. Dollar-Cost Averaging (DCA)

The principle of dollar-cost averaging (DCA) very much applies to the crypto market. DCA is used to beat volatility, and the latter is a major characteristic of the market. By investing small amounts over time, you can stem any losses and make more efficient use of your capital.

By implementing this DCA method, you will pay a little more in network fees, but any gains you make should render this negligible. You could do this on a weekly or monthly basis—the details are left up to your strategy. If you feel particularly positive about where the market is going, then you can set aside some extra capital for when the market seems to be at a low.

3. Research in Detail, Stick to the Fundamentals

Never buy a cryptocurrency you haven’t researched in depth. It can be tempting to put a small amount of money into an altcoin you read about online. But it’s your money and there’s a lot of misinformation out there. Only you know your investment strategies and goals. Research doesn’t guarantee success, but it significantly reduces the chance of being scammed or buying a crypto that doesn’t have good long-term potential.

Research matters in the crypto market. While it’s not as clear-cut and direct as investing in a publicly traded company, it still plays an important part in the investment process.

Some of the principles with which you will guide your research are whether the project and crypto in question have a valuable and unique use case, the technical elements of the project, the management team, and the potential to disrupt the particular industry or space in which it is working.

However, in all cases, you should always focus on the fundamentals. Does the project have a transparent and honest team? Do the financials, in terms of expenditure and allocation toward investors, add up? Does the technology seem like something that has genuine potential?

4. Diversify Your Investments, Stick to the Major Assets

Diversification comes in various forms – the types of assets you buy, and the individual assets within each class. Exactly how much depends on your tolerance for risk, belief in crypto, and financial situation.

Of course, for many, the comparatively complicated and novel way of researching cryptocurrencies may be intimidating. For these individuals, it may just be better to stick to the major assets that have survived the test of time. Bitcoin and Ethereum are the best examples of these assets and have endured many rough bear markets.

It’s also good to diversify within your crypto portfolio. Some people choose to only invest in Bitcoin and Ethereum, which makes sense as these are the most established cryptos and have the best chance of surviving long term. But if you want to buy smaller altcoins, don’t go all in on one or two.

Consider a mix of crypto sectors depending on which ones you think are promising. For example, one portfolio is heavily weighted toward smart contract crypto tokens, because it is an area you’ve researched a lot and you like that many other cryptos are built on these blockchains. Also have some exposure to gaming and metaverse tokens, and steer clear of privacy tokens completely. While other investors will likely have different priorities and areas of knowledge.

There are several others as well, though it becomes much harder to say whether those other major assets with large market capitalizations have the potential to survive in the future. This applies to Bitcoin and Ethereum as well, though the consensus is that these two have already proven themselves worth considering.

5. Think Long Term

One way to survive the volatility of crypto is to invest with a 10 to 20-year mindset. Attempting to time the market through short-term trading is almost impossible to do and many investors lose money this way. Instead, look for projects with strong leadership and good utility that may perform well in the coming decades.

It isn’t always easy to think long term because this is such early days for the industry and there’s a lot we don’t know about how it will evolve. But it’s an approach that will help keep even prolonged dips in perspective and prevent making emotional decisions. As an example, if you bought each of the top 50 cryptos five years ago, you’d be looking at an increase of about 700% in spite of the fact that many projects did not survive the 2018 crypto winter.

6. Employ Common Sense

Above all, investing in the crypto market requires common sense. It is easy to get swept up in the hype and commotion surrounding a spanking new project, but more often than not, this leads to heavy losses. It is even easier to get involved in a meme token that rises considerably purely from a rallying of individuals online but this is a double-edged sword, with one side much sharper than the other.

Like with the stock market, you want to diversify. There are several projects working on some key problems and use cases, and these have the potential to cause some major disruption. It is not guaranteed, but like with the various sectors in the stock market, you can apportion your capital across these projects.

The Bottom Line

Crypto is a relatively new asset class. Investing in the crypto market can seem daunting. It is a novel space that does not seem to follow many rules. However, there are some fundamental approaches you can take to ensure that you make good use of your capital.

There is no need to be too much to worry about investing. If you’re considering buying crypto, it’s crucial you shore up your finances and research the industry first. Apply the basic tenets of investing and use common sense, and you may find that the crypto market is not as overwhelming as you once thought it.