As a long-term cryptocurrency investor, you must know these tips.

When it comes to cryptocurrencies, one of the biggest challenges for investors is not getting caught up in the hype. Digital currencies have quickly risen to a place of prominence in the portfolios of many retail and institutional investors. At the same time, analysts have continued to caution investors about their volatile nature and unpredictability.

Don't put in more than you can afford to lose

Crypto is riskier than many other investments. Nothing is guaranteed other than volatility. What's more, it's unregulated in most cases. There is no FDIC insurance for this stuff, nor is there a buyer of last resort. The prices of crypto coins swing wildly from minute to minute. While the market is basking in the glow of bull run, it has endured painful and protracted corrections and almost certainly will again. Danger varies in degree. Bitcoin, the original cryptocurrency, has been around for more than a decade and it's significantly less likely to disappear than most other coins. But it's not free of risk either. Hence, don't bet the proverbial farm, or your life savings, on any coin.

Research thoroughly

Before you invest a significant amount of money in any digital currency, spend hours upon hours researching the technology so you understand the value proposition and the risks. Lurk on community forums and developer mailing lists. Listen to podcasts. Borrow books from the library, not only about digital currency but related fields like cryptography, game theory, and economics. Read CoinDesk and even some of our competitors. Go to local meetups, if your area is no longer on COVID-19 lockdown. Ask lots of questions. If you don't understand what you're hearing, don't be afraid to ask someone to explain. Once you think you've researched everything there is to know, do even more work. You're probably not done yet.

Resist the fear of missing out

If the only reason you're investing in something is to avoid missing out, the only thing you won't miss out on is losing everything.

Fear of missing out (FOMO) is a sure way to destroy whatever wealth you may have accumulated over the years. The problem is that it's a gut reaction to something that should be researched first. Trading based on your gut will quickly lead to an upset stomach. Know what you're buying. Really know it. Going on a trading app and seeing a currency is up 30% or so over the past 24 hours isn't research. It could be you're the unlucky sap being sold a falling cryptocurrency. Every coin has pumpers (shameless promoters), even bitcoin. Don't succumb to peer pressure.

If it sounds too good to be true, it probably is

Much like Wall Street, the U.S. Congress, or the American Bar Association, crypto is rife with charlatans. There are more than enough people promising their project will be the one to overtake bitcoin. Some crypto exchanges offer more than 100x leverage, meaning you can borrow up to 99% of the cost of an investment. This will juice your profits if a coin goes up in value, but if it goes the other way you could quickly be wiped out.

Don't trust, verify

Scammers abound in this market. Just this past weekend, some rascals on Twitter took advantage of Elon Musk's appearance on television's "Saturday Night Live" to defraud people out of US$100,000 worth of various cryptos with a bogus "giveaway." Impersonating the comedy show's Twitter account, the miscreants instructed their victims to send small amounts of crypto to verify their addresses. If they did so they would get 10 times the amount back. That too-good-to-be-true proposition was a red flag.

Beware of 'unit bias'

Just because a coin is trading around $1 does not mean it's "cheaper" than bitcoin at US$58,000. Not all coins are created equal. There are literally thousands of cryptocurrencies, some of which seek to emulate bitcoin and some of which try to solve other issues. They all have varying levels of developer support and decentralization. Determining the value of a coin means asking how and why was the coin created. Crucially, what is the coin's security model – proof-of-work, proof-of-stake, or something else? If it's the former, how does the hash rate compare to other PoW coins? If you don't know what these terms mean, you're not ready to invest.

Not your keys, not your coins

Cryptocurrency is a bearer asset like cash or jewelry, meaning the holder is presumed to be the rightful owner. Once it's lost or stolen it's gone. That is why advanced users will advise you not to entrust the cryptographic keys to a digital currency wallet to a third party, such as an exchange, because these firms are largely unregulated in many places and may be subject to hacks or exit scams. Decentralized finance (Defi) platforms have fallen prey to numerous high-profile exploits over the past 10 months, and centralized platforms like Binance have been subject to their fair share as well.

You can buy a fraction of a bitcoin (and most other cryptos)

You don't need to buy a whole coin. Bitcoin, for example, is divisible to the eighth decimal. So, if you're curious about how this stuff works, you can purchase as little as US$10 worth and just play around with it. As billionaire Mark Cuban recently said on television of buying small amounts of dogecoin, "it's a whole lot better than a lottery ticket." Unfortunately, he also encouraged viewers to spend doge on merchandise without mentioning the tax implications (see below).

Understand the tax consequences

This is especially important in the U.S., for several reasons. First, the Internal Revenue Service (IRS) considers crypto property, not currency, for tax purposes. The upshot is if you buy a coin for US$1 and it doubles in value and you spend that extra dollar to buy so much as a pack of chewing gum, you are required to report that capital gain and pay tax on it. There is no "de minimis exemption," despite the crypto industry's lobbying efforts. Also, centralized exchanges regularly send account information to the IRS. Sure, crypto isn't as regulated like stocks or banks. However, the federal government is running a massive deficit and it won't think twice about sending in folks with mirrored aviator glasses to visit you to ask about your crypto trades.

Purchase using dollar-cost averaging and don't obsess about price

Go outside. Get some fresh air, exercise, and sunshine. Spend time with your family. You can do all that AND invest in crypto. The markets will fluctuate from day to day, hour to hour, minute to minute, but any crypto worth a damn, any investment of any kind worth a damn, is a long-term bet. If you want a dopamine hit, go for a run or watch an action movie.