There has been a lot of debate regarding whether Bitcoin and other forms of Cryptocurrencies are financial assets. Cryptocurrencies are digitally transferable assets that cannot be copied or duplicated. The Blockchain Technology, also called the distributed ledger technology makes it possible for Cryptocurrencies to be transferred hassle-free, without the involvement of any financial institution overlooking the transactions. Bitcoin is one of the most popular Cryptocurrency in the market right now. Let us probe into the question as to whether Bitcoin can be considered a financial asset. Before that, let us consider a few common mistakes people tend to make when they are investing in Cryptocurrency.
Four Major Mistakes Made During Investing in Cryptocurrency:
- Buy High, Sell Low- As beginners, people tend to panic when they see the value of Bitcoins decreasing. They immediately sell their Bitcoins off. This is a major mistake that pushes investors towards huge losses. Consequently, when they find the value of Bitcoins has risen comparatively high, they tend to buy as much as possible. They anticipate a further rise in the value. This may not necessarily be the case, and often lead to long term losses. Dollar-Cost Averaging can be used to make smart investment choices. The investor needs to divide the total amount he intends to invest into smaller portions. He should ideally invest each portion of the sum at various time periods. This ensures that he buys Bitcoins at various values. If he thinks there will be a surge in the value, he can invest a portion of his money. Thus, when the value falls instead of rising as per his predictions, he will still have enough money to invest in the lowered value of Bitcoins.
- Buying because the Cryptocurrency is cheap: There are investors who avoid investing in Bitcoins, because there are other cheaper forms of Cryptocurrencies available in the market. This should be avoided. The most prominent cryptocurrencies in the market are Bitcoins and Ethereum. If an investor is choosing not to invest in these due to their high market value, he is not being able to understand the concept of Market Capitalization. Bitcoins are more in value hence the returns from Bitcoins are high too. Also, if the price of Bitcoins falls tremendously low someday, there will still be enough people willing to buy them. As for other less prominent cryptocurrencies, it may not be the same.
- No Diversification: Another important criterion one should abide by while investing is to invest in variety. It is the same for investing in shares. In case of Cryptocurrencies, Bitcoin and Ether are the two most prominent. Thus, investing some of your total sum in Bitcoins, and the rest in Ether would be a smart decision. The value of Cryptocurrencies at any given time is full of uncertainties. Under such circumstances, keeping your options open is a sane choice to make. In case of an unforeseeable fall in either of their value, the other investment will still provide some hope. The investment division need not even be 50-50. It can be an investment of 75% of the money in Bitcoin, and the rest in Ether, or vice versa. It is just a way to have all your options open.
- Buying more than you can afford to lose: Most beginners tend to fall into this abyss of gambling. More than an investment, the nature of unpredictability in this field makes it almost as good as gambling. A beginner who is yet to understand the market structure, and is in his initial days of managing his finances is sure to spend way too much in hopes of substantial returns. Most often, the contrary happens, and he ends up losing more than he could afford to
Having discussed the setbacks of investing injudiciously, you can check out Bitcoin Mastery to know more about it.
Bitcoins were introduced in the market merely as a medium of exchange. They are intangible in nature. There are not many spaces which accept payment in terms of Bitcoins. The existence of Bitcoins has not been authorized by any central authority. It is only a group of investors, and inquisitive minds who mine and exchange Bitcoins. Hence, Bitcoins cannot be called financial assets despite their role in investment.