Thinking of investing in crypto? Here are 3 things you need to know

Since the New Year, the collective market capitalization of crypto has increased by around 60% and is at levels not seen since June 2022. With this renewed momentum, crypto is once again on the radar of investors.

Because of this rally, it is likely that some new investors are considering gaining some exposure to crypto. If you’re one of them, there are a few things to keep in mind to ensure your portfolio is set up for success.

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1. Simplicity wins

Keeping a simple portfolio is essential to minimizing risk, because crypto is one of the riskiest asset classes out there. Diversification is also key, but so is not overcomplicating your portfolio. You need to ensure that your portfolio has sufficient exposure but is not overweighted in the most speculative assets.

Remember that it is not uncommon for obscure cryptocurrencies to become worthless and cease to exist.

2. Volatility is part of the game

Another thing to keep in mind is that the cryptocurrency market is highly volatile – orders of magnitude more volatile than the stock market. It is not unusual for the value of cryptocurrencies to fluctuate wildly over the course of a year. Not to mention, these assets can sometimes fluctuate by double-digit percentages one way or another on a daily basis.

However, volatility should not discourage investors who aim to invest in cryptocurrencies for the long term. Therefore, short-term movements should be overlooked as a feature of emerging asset classes.

The best strategy is to be patient and not make knee-jerk decisions based on short-term price movements. Instead, take a long-term perspective and trust that over time, like many innovative technologies of the past, cryptocurrencies will increase in value over time as their use grows.

3. Threatening regulation

Another important difference is that the cryptocurrency market is less regulated than the stock market – but that could change very soon.

In response to the disasters of 2022 where several crypto companies went bankrupt and some cryptocurrencies imploded, officials in the United States are stepping up efforts to rein in the cryptocurrency market.

There have already been several lawsuits in 2023 aimed at some of the most high-profile companies, such as e.g. Coin base and Binance. Based on the current trajectory, it looks like officials may eventually target cryptocurrencies themselves, and not just the companies that offer products that revolve around them.

Create a game plan

So, when considering these three points, what can investors do today to ensure they minimize risk and maximize potential?

Well, it’s actually quite simple – invest only in the most decentralized cryptocurrencies with proven results.

When using this strategy, two options become most apparent: Bitcoin (BTC -0.20%) and Ethereum (ETH 0.67%). By buying these two, investors cover all three points mentioned earlier.

Together, these two account for more than 60% of all value in the cryptocurrency market. Simply put, as they go, usually so goes the rest of the market. Investors can keep their portfolios simple by prioritizing Bitcoin and Ethereum.

Furthermore, they also have the largest market capitalizations in crypto. This means that they are inherently less volatile than some of their counterparts. This is not to say that they are not volatile, but the daily fluctuations tend to be less pronounced and regular.

Finally, as some of the most decentralized cryptocurrencies, Bitcoin and Ethereum are less likely to be candidates for federal regulation. Based on comments from regulators, it appears that cryptocurrencies that are highly centralized and more or less operate as public companies acting behind the facade of a cryptocurrency will be the most targeted. Unlike Bitcoin and Ethereum, most cryptocurrencies are likely to avoid regulatory restrictions.