Today, cryptocurrency remains to be one of the most attractive investment opportunities for most people across the world. However, this is an area that requires a lot of careful consideration before investing your money. Unfortunately, most just throw all their money into cryptocurrency investments, without even researching the ins and outs of the industry, and gaining insights and understanding of the market. In this post, we shall discuss the top 6 things you need to know before investing in cryptocurrency.
Cryptocurrencies are risky
The cryptocurrency market is very risky. Just like most startup businesses, the majority of cryptocurrency assets fail and end up becoming worthless. Thus, experts in this field advise non-professional investors to invest the amount that they are willing to lose.
Today, you will hear stories of people minting money in this industry. However, investing at the wrong time can cause major losses. Here are simple statistics to show the performance of cryptocurrencies. By May 2017, a single unit of (BTC) bitcoin traded at an average of $1,500. This value shot to around $19,800 by December 2017.
Recently, the prices of BTC have been oscillating between $6,600 and $10,000. While you have a big chance of getting high returns by investing in cryptocurrency, the market is highly volatile, meaning you can lose your money too.
The uses for cryptocurrencies are versatile
Recently, there has been an increased use of cryptocurrencies to fund illegal activities. Also, legitimate and legal businesses do accept cryptocurrency for transactions. One thing with cryptocurrencies is that they provide fast, efficient, and cheap money transfers.
Thus, cryptocurrency has become a popular mode for making international money transactions. Interestingly, a $99 million (LTC) litecoin transaction can take not more than 3 minutes and can cost you less than $1 in transaction fees. Moreover, cryptocurrencies are not regulated by authorities, meaning your account cannot be frozen.
This is possible because owners have private keys to their wallets, meaning they are the only individuals to access their assets. Moreover, investors can gamble on listed cryptos, betting on the ones that might succeed or fail.
Cryptocurrency can disappear
One thing with cryptocurrencies is that they operate virtually, and they don’t have a central storehouse. Because of this, it’s very possible for a user’s account balance to be cleared. A simple technical issue like a computer crash can easily destroy your cryptocurrency stash—if you didn’t have a backup.
If you lose your private keys, you cannot recover your cryptocurrency. Also, there’s a high risk of scammers hijacking your mobile account by imitating an account owner. Mostly, scammers will reach out to the carrier, and then request for the user’s phone to be moved to a new device—and this is what allows the scammers to access cryptocurrency accounts.
The market is very volatile
According to professionals from the crypto crowdfunding platform, Stokr, bitcoin has been very volatile in terms of its prices for the past few years. It rose from several hundred dollars to over $17,000 by the end of 2017. Currently, the price of bitcoin is around $10,150, and it’s not possible to determine if its price will increase or decrease in the future.
Interestingly, there are over 2,000 types of coins, and the prices of these coins are very unpredictable, particularly for the smaller coins. The cryptocurrency market has a cap, which shows the market value for every coin in the market. The smallest coin, which is the HarmonyCoin, has a value of $32. The bitcoin market cap, on the other hand, has a value of over $104 billion, and Ethereum, which is the second player in the market has a market cap of $18 billion.
There is no proven rate of return
Investing in cryptocurrencies is like gambling. Typically, cryptocurrency is exchanged peer to peer, and there are no regulatory standards to these transactions. Therefore, there is no pattern to the increase or decrease in the value of cryptocurrency. Besides, it’s hard for anyone to calculate returns or predict changes, like in the case of stock mutual funds. The market doesn’t have enough credit or enough data for investors to create a long-term investment plan.
Closely monitor for any changes in the trading volume
If you want to trade several cryptocurrencies, you need to monitor the trading volume of the cryptocurrencies. Typically, the trading volume for the top 10 tokens shouldn’t be a problem. However, if you want to invest in new cryptocurrency assets, ensure that you monitor the number of coins being purchased or sold every day, as well as their fundamental value.
Cryptocurrencies with a higher trading volume are easier to sell or buy. However, cryptocurrencies with low trading volumes might have some challenges. Thus, you must monitor the trading volume to avoid risking your money.