Anyone who has ever dipped their toe into the crypto waters will be familiar with this one: everyone’s going to have questions about it. There’ll be people who think that they know better than you because they read a news story about it, and there’ll be people who think that you have all the answers. The truth is that investing in crypto takes a lot of time and energy to get right.
That’s why having a friend suddenly decide they want to get into cryptocurrency investing can be concerning if they lack experience. The crypto landscape is complex and risky. However, you can guide them to help them avoid pitfalls and invest smartly as a beginner. Here are some tips:
Caution Them Not To Overextend
Remind your friend to only invest money they can afford to lose entirely. The cost-of-living crisis has been tough on everyone, and the last thing you should be doing is dipping into your rent money. Cryptocurrencies remain highly speculative assets that can crash fast with little warning. This is not rent money or emergency funds. Make sure they understand the risks of total losses before buying any coins.
Encourage Thorough Research First
Before purchasing any crypto assets, your friend should spend time researching the overall landscape and learning the basics around blockchain, mining, exchanges, taxes, keys, and wallets. Recommend informative articles, videos, forums, and podcasts to build foundational knowledge.
Suggest Starting Small
Your eager friend should start experimenting with tiny amounts of top cryptos like Bitcoin and Ethereum to understand how purchasing, transfers, and storage work before putting in more substantial sums. Practicing makes the process less daunting. Baby steps are wise.
Guide Them Through Exchange Sign-Up
Walk your friend through selecting a well-known mainstream crypto exchange to create an account. Look for licensed exchanges with solid security practices and features like cold storage and 2-factor authentication to protect their account.
Verify ID upload, funding methods, fees, and account settings together. Explain each step so they feel comfortable.
Help Them Choose A Secure Wallet
After buying crypto on an exchange, they should transfer holdings they plan to keep long-term to a non-custodial wallet where they control the private keys. Advise on top hardware wallet options for enhanced offline security. Also, explain software and paper wallets.
Share Security Best Practices
Make sure your friend enables 2-factor authentication on exchange accounts and anywhere else associated with their crypto activity. Caution them against phishing attempts. Ensure they understand how to safely store any recovery phrases for wallet access in case devices are lost. You’ll remember how important it is to get into good security habits nice and early, so feel free to keep grilling them about whether they’re keeping it up!
Suggest Diversifying Among Assets
For a balanced risk profile, advise your friend to diversify their crypto portfolio across a mix of assets – ideally 5-10 to start. It could be a major mistake to invest in just 1-2 very risky coins because they’ve set their sights too high. Encourage participation in more proven big cryptos like Bitcoin and Ethereum.
Help Them Find News Resources They Can Trust
Provide links to leading crypto news sites so your friend can stay on top of the latest developments, regulations, security threats, technical analysis, and innovations in the space. Following reliable news sources keeps new investors informed and engaged. Bitcoinist offers the latest crypto news and talking points, as well as lots of guides and how-to’s for beginners. Visit their website to find out more.
Explain The Importance of Tax Planning
Remind your friend that crypto tax reporting can be challenging. They should consult a qualified tax professional to understand the implications of activities like trading, conversions, mining, staking, airdrops, and payments made in crypto. Proper documentation is key.
Suggest Setting a Long-Term Plan
Guide your friend to think long-term and avoid trying to time short-term price fluctuations. Have them outline their crypto investing goals, ideal timeline, rules for portfolio rebalancing, and target percentage of overall assets. A plan brings disciplined decision-making.
Recommend Learning Continuously
Explain that educating themselves about crypto should be an ongoing process as this technology continues rapidly evolving. Following experts and communities enables them to continually expand their knowledge, vocabulary, and technical understanding over time. Learning is lifelong.
Explain Not Your Keys, Not Your Coins
An important concept for new crypto investors to understand is “not your keys, not your coins.” Exchanges control the private keys that allow the spending of coins held on their platform. Stress the importance of transferring to their own wallet whose keys they exclusively control.
Caution Against Crypto Influencer Hype
Remind your friend to take bold price predictions and hype from crypto influencers with a grain of salt. No one can reliably predict future price movements. Following influencers is fine but warn against buying assets purely due to hype.
Suggest Starting An Investment Journal
Keeping a journal of investment decisions, key learnings, and mistakes, and tracking portfolio changes over time helps avoid repeating errors. A journal also allows revisiting past logic and market conditions. Journals build wisdom.
Introduce Them To Blockchain Analytics
Show your friend tools that provide visibility into blockchain transactions and patterns. These tools allow the investigation of suspicious wallet activity and verifying transactions. Knowing blockchain analysis methods improves safety.
Warn About Promises Of Guaranteed Returns
Make your friend wary of any promises of guaranteed high investment returns, which are essentially always scams in crypto markets. If an opportunity seems too good to be true, advise extra caution and research before providing any funds.
Encourage Asking Questions
Let your friend know they should always feel comfortable asking you crypto investing questions as issues and uncertainties pop up. Provide trusted insights and advice as challenges arise on their journey.
The crypto learning curve is long, but you can shortcut pitfalls for newcomers through education and guidance. By helping them avoid mistakes early on, it sets up a solid foundation for future growth and success with cryptocurrency assets.
