Cryptocurrencies
have grown immensely over the past few years, and many people are looking to
get involved with this trend. However, it’s essential to understand the risks
before you put your money into crypto—the same way you would before investing
in any stock or other financial asset.
To help/assist you
make an informed decision about cryptocurrencies, we’ll cover how they work,
the pros and cons of investing in them, and how to determine if this is right
for you.
What are
cryptocurrencies?
The term cryptocurrency
refers to a digital currency that uses cryptography for security. A
cryptocurrency is difficult/hard to counterfeit because of this (cryptography)
security feature.
A defining
feature/characteristic of a cryptocurrency, and arguably its most endearing
charm/allure, is its organic nature; it is not issued by any central authority,
rendering it theoretically immune to government interference or manipulation.
However,
cryptocurrencies are subject to speculation and hacking. There have been cases of
investors losing everything due to hacks.
In 2014, one of the
largest bitcoin exchanges, Mt Gox, declared bankruptcy after losing almost $500
million worth of bitcoins due to hacking.
Investing
today – Do I have time to wait?
Yes, cryptocurrency
is still a very new technology. The market has yet to reach critical mass, and
there’s no way of knowing what will happen when it does. Plus, there’s no
telling whether Bitcoin or another crypto coin will remain dominant.
Even if you think
you want to take a risk on crypto today, remember that there’s never been a
better time for traditional investing. If cryptocurrencies fall out of favor,
later on, selling your investment won’t be difficult.
And even if they don’t,
you can always sell them after they go up in value. In other words, you don’t
have to invest at all—you can wait and see how things play out.
Would it be
worth it?
The primary
question you need to ask yourself is whether or not it would be worth your
while. When we say worth your while, we mean that if you could make a large
amount of money and a great ROI (return on investment), then by all means, go
for it.
But always remember
that there are many risks involved when dealing with something so new and
exciting—like cryptocurrencies—and it’s essential not to invest more than you
can afford to lose. It’s also wise to diversify your investments, meaning don’t
put all of your eggs in one basket.
So spread out your
cryptocurrency investments over several currencies, including Bitcoin,
Ethereum, Litecoin, and Ripple. If one currency crashes hard, you won’t have
lost everything.
How do I
invest?
It’s easy! You can
start investing in two ways: Sign up for a cryptocurrency exchange like
Coinbase, or purchase cryptocurrency through a digital wallet like Blockchain.
Either way, you’ll
need to provide your name and contact information and link your bank account.
From there, it’s just a matter of buying some bitcoin—or another currency—and
waiting for it to increase in value so that you can sell it at a profit.
Should I
buy it (cryptocurrencies)?
Ask yourself these questions before you invest:
- What is your goal for investing?
- Is it a long-term or short-term goal?
- Do you plan on actively trading your investment, or are you looking to hold it?
- Do you know much about cryptocurrencies?
- Are there any associated risks that could cause your cryptocurrency investments to fail?
- Have you set aside enough money to make an investment worthwhile?
- How will buying and selling cryptocurrency affect your taxes?
- How will buying and selling cryptocurrency affect your cash flow?
- Do you have experience in cryptocurrency trading already?
- Will you need to pay fees to buy and sell cryptocurrencies?
- Will you need to pay fees when withdrawing money from exchanges (convert it into fiat currency)?
- If something goes wrong, how easy will it be for you to get help resolving issues with customer support at each exchange?
What
happens if the price drops?
cryptocurrency through an exchange or someone on a street corner selling them,
you have no guarantee that you’ll be able to sell your investment at a higher
price later. As such, it’s a good idea to diversify your investments across
different cryptocurrencies and wait for those prices to rise before you begin
selling them.
If you can stomach
some risk/danger, you might want to invest in more than one cryptocurrency—but
don’t go crazy and invest everything you have. If one currency falls by 50%,
another might increase by 100%.
Conclusion
While we still don’t
know what will happen with cryptocurrencies, we know they have a good chance of
surviving and increasing in value and importance.
If you doubt
whether or not investing is for you, remember: there are plenty of reasons not
to invest. And be aware that there is no such thing as guaranteed returns—not
when it comes to stocks, bonds, or cryptos.
The market is
volatile and unpredictable; even if your investment does well, there’s always a
chance it could crash again. The important thing to consider is whether
cryptocurrency investments are suitable for you and how much risk you can
handle.
