Most enthusiastic Fin-Tech investors have been affected by this ‘crypto-frenzy.’ And last year’s market crash also created some additional buzz around it for more people to become curious about whether to invest or not.
But it would be unwise to dabble in cryptocurrency unprepared.
Blockchain – the tech behind cryptocurrencies – is redefining the internet. Tech businessmen like Elon Musk have already spoken in favor of it, calling crypto the ‘currency of the people.’ So it’s no wonder $112 billion worth of currency is exchanged daily in the form of digital coins.
Blockchain has been used to make web3, the upcoming version of the internet. It gets the well-deserved label, ‘the internet’s future’ because of the privacy, transparency, and decentralization it provides, eliminating third parties such as banks from the equation. Today, people increasingly ‘trust’ crypto and want to make money by investing in this tech.
But here’s a twenty-one-million-bitcoin question: what should you know before investing in cryptocurrency? Statistics indicate that 16% of Americans own, trade, or invest in virtual currency. One-half are pleased with their investments, and one-half of millennials have stashed 25% of their wealth in crypto.
Even though crypto doesn’t promise immediate success – and the recent crash in May 2022 is enough to show that Bitcoin isn’t a get-rich-quick scheme – there’s nothing wrong with investing some of your hard-earned cash in this tech. But with high returns comes high risk. You can’t invest in crypto properly without knowing its basics and the associated risk. And that’s precisely what this blog will explain. Here’s how you should get started:
Learn About Crypto
You can learn cryptocurrency fundamentals by familiarizing yourself with its limitations and potential. Enrolling in and completing an online cryptocurrency course can help you acquire relevant information on blockchain and cryptocurrencies, how they function, and what to expect. While these courses do not provide investment advice, having substantial beginner knowledge about cryptocurrency and blockchain is beneficial before you can safely invest in it.
Research Isn’t Optional
Consider spending some quality time doing research mandatory for developing a better understanding of the basics of cryptocurrency. Many first-time investors can be mesmerized by feel-good stories successful investors share on the internet. But research reveals that only a few traders make a lot of money. This research will also help you better understand the risks and opportunities associated with cryptocurrencies.
Government And Bitcoins
Even though cryptocurrencies remain highly unregulated, governments do ask investors to pay some taxes on crypto-related gains. Experts from Forbes state that cryptocurrency earnings are subject to either income tax or CGT. You can easily calculate your crypto-related taxes, and only after paying these taxes can you keep the profits earned from trading or investing in cryptocurrencies.
That said, what are some risks you should consider before investing your hard-earned money?
Cyberattacks Do Happen
Even though blockchain promises tight security mechanisms, your digital wallets aren’t 100% secure. Cybercriminals still threaten to infiltrate trading platforms and steal your digital assets.
But cyberattacks aren’t the real problem. Since cryptocurrencies are unregulated, you can’t recover them like you usually recover bank-stored assets.
Scams Are Pretty Common Too
People who invest in crypto to get rich quickly can lose their investments equally faster if they’re not careful. There’s no shortage of fraudsters in the world of crypto. The road to success is riddled with scammers who promise you riches to rob you of your hard-earned cash. Hence it’s a good idea to learn about some apparent signs of a social media account running cryptocurrency scams. Here are some of these signs:
- Obvious deep fakes of celebrities promoting Ponzi schemes
- Excessive advertisements and over-the-top marketing strategies
- Poorly-worded whitepapers filled with grammar mistakes
- The app they’re marketing cannot be found on any reliable application store
- Someone you know only via social media recommends a crypto scheme
It’s A Volatile Industry
One of the most dangerous aspects of cryptocurrency is the inherent volatility of some of the most popular digital currencies. For instance, Bitcoin remains a decentralized and unregulated currency, hence highly speculative and unpredictable for an amateur investor.
Although Fin-Tech and crypto gurus work tirelessly to decode the ups and downs of digital currencies, it’s easily manipulated by many anonymous investors trading globally. For example, Bitcoin’s value dropped from $60,000+ in 2021 to less than $30,000 in 2022. Consider these fluctuations as a warning sign and void of being careless.
Still, if you’re eager, follow some basic investment tips that apply to any asset type. These tips will help you mitigate risk.
Diversify Your Portfolio
An oft-forgotten thing about crypto trading and investments, in general, involves the importance of diversification. As cryptocurrencies are highly volatile, it’s only reasonable to create a balanced investment portfolio to mitigate risk.
As the age-old adage goes, never put all your eggs in one basket. If you plan to invest, experts suggest you scatter your spending across different options, such as gaming and NFT. Here’s some classic diversification advice:
- Invest in several cryptocurrencies instead of just one
- Diversify by industry
- Invest your money into crypto projects in various countries
- Invest in cryptocurrency by market capitalization (big and tiny caps)
- Divide your investments into different categories as per the risk level
Curb Your Emotions
It’s a no-brainer that any investment based on emotions or intuition won’t usually make you rich. Treat cryptocurrency investment as a trade and beware of poorly-timed decision-making. You shouldn’t allow the fear of missing out (FOMO) to draw you into making terrible investment decisions. Instead, check when the timing is right after carefully analyzing market trends and price fluctuations. Then, hit when the iron is hot.
Try Fractional Ownership
Fractional ownership means you don’t have to purchase an entire coin. Instead, you only get a portion. For instance, as of 12 January 2023, you can buy 0.000055 BTC for a dollar. And 1 BTC currently costs around $18,000+, with the price continuously changing. The same goes for other alternatives in the crypto realm, e.g., Ethereum and Dogecoin.
Fractional ownership makes it easier for people to invest in cryptocurrency. As Bitcoin’s price increases, your share also becomes more valuable.
Some Fun Facts
- It’s possible to create an entirely new cryptocurrency, and there are almost 22,000 coins now in existence.
- Not every government allows cryptocurrency transactions. While some countries have fully adopted Bitcoin, other states forbid it.
- There can’t be more than 21 million Bitcoins in the world. As over 19 million Bitcoins have been mined, mining will cease to be profitable.
You can’t expect to reap the benefits of any investment without knowing the basics. This article has familiarized you with the fundamentals of cryptocurrency, the foreseen obstacles, and some helpful tips on how to play it safely. An educated decision is better than one made on whims and hearsay, and the internet is the best place to start educating yourself.