10 Things to know Before Investing in Cryptocurrency
It is crystal clear to everyone that Cryptocurrency is standing tall as the undefeated alternative of traditional finance. This gives people all the more reason to invest in the future of finance. The currency world has seen a rapid growth over the last two years. But, investing in Cryptocurrency is surely not as easy as it seems to be.
Just because it’s buzzed doesn’t mean it’s simple. Investing in cryptocurrency is a tricky game, it can turn you into a Millionaire but it can also empty your pockets real soon. So being careful, knowledgeable and seeking guidance before investing is absolutely necessary. You might be itching to follow the world but you need to stop and think about certain factors.
In this article we’ll cover that for you. But before that, let us understand why are cryptocurrencies so volatile?
Why are Cryptocurrencies Volatile?
Cryptocurrencies are volatile in nature, mainly due to limited supply and limited number of holders. At the time of writing, the total crypto market cap is 1.5 Trillion and most of the crypto companies have less than 100k holders. Only a few projects have less than a million holder. The new projects that are launched have around 2000 holders. Less number of holders imply only a handful of holders control the price. If any of the top 50 holders chose to sell, the price drops significantly.
Similarly, if there is a small buy of around 50k to 100k USD, the price rises significantly. This is the reason, the cryptocurrencies are volatile. Now that you know why cryptocurrencies are volatile, and you think you are ready to take the jump, let me suggest you wait. Read the article before you decide to purchase your first cryptocurrency.
10 Flags you need to see before investing
Cryptocurrency is a digital currency which runs on a Blockchain technology to ensure privacy and security of individuality as well as transactions.
Let’s have a look at few things that you need to keep in your mind before investing in cryptocurrency:
1. Unstable, Volatile and Uncertain
It is no news that the crypto market is highly volatile. We have already explained you, why. The price changes every second, yes you heard it right, EVERY SECOND. The prices of no coins can ever be constant, except for stablecoins. The market is affected by numerous factors including social factors like wealth accumulation, financial factors like depression or a boom in the economy, technical factors like addition of a new feature or elimination of an old one, or even a “tweet”. Yes, that’s how uncertain the market and the prices and the trading volume of a digital currency can be. You’ve just gotta keep up with the Market. Take your bet accordingly.
2. DYOR: Do Your Own Research
DYOR is a very common term in the work of crypto. You need to be thorough with the market before stepping a foot into it. There might be a lot of hype about cryptocurrency in the market but that shouldn’t be your reason to get into it. It is a luring market and people are often convinced to enter the market without the Perfect knowledge, but that’s the trait of an unhealthy investor. One needs to know, learn and research enough about the market, the Cryptocurrency and the factors affecting it to be ready to invest. It is also important to see if the team is legit. Scams in crypto is very common.
We have a whole video in our Cryptobullsclub Youtube channel on how to do your own research.
Video: How to Do Your Own Research
3. Only invest what you can afford to lose
The most important advice you can take before investing is to invest only what you are ready or willing to lose. If you follow this rule, you will never have to go bankrupt or cry over your losses. Because the only thing that is certain in the crypto market is uncertainty. That is why it’s better to invest only what you can afford to lose and hence not get disappointed with the loss. You shouldn’t invest money that is meant to fulfill your necessities or meet your responsibility. Because you might be promised a return from the market, but it is not always a profitable return.
You need to follow this strictly for SHITCOINS and MEMECOINS.
4. If it sounds unlikely or doubtful, steer clear of it
There’s nothing in the crypto market that can be trusted blindly. And if amongst all the noise in the market of the prices crashing or soaring and new coins being introduced, if you find anything suspicious or too good to be true, it is strictly advisable to believe it. Don’t experiment with new coins or fall in the trap of claims that give you amazing and quick returns. There are Scams happening everyday because people are in a hurry to earn money. So, don’t make a fool of yourself by trusting strange investment advisers or unknown sites and even unfamiliar altcoins.
5. Do Not Invest Because You’re Having A FOMO (Fear of Missing Out)
Every investment should have a purpose and it surely shouldn’t be related to having a FOMO. Just because everyone else is doing it, doesn’t necessarily mean that you have to do it too. One should know how to resist the fear of missing out from the crowd. Any one who wants to get into the Crypto market should have a solid reason to do so. Some people just start investing without a motive or a purpose, only to join the race. It is not the sign of a healthy Investment. Don’t give into peer pressure because nobody is going to pay your bills except yourself. So do proper research and then set your foot into this market.
6. Buy a fraction or a fraction of a fraction when you start investing
The best way you can take a gist of the market is by investing a very small amount in the initial phase. You can buy a fraction of any crypto that you wish to invest in. It will not only help you understand how the market and coins work but also shield you from major losses. Start low, learn. Repeat. Once you have got the hold of the market, you can think of investing more. As a new investor, this is the most preferable form of an investment.
7. Cryptocurrency is not illegal
A lot of people struggle to get the legal concept of crypto clear in their head. As of now, Cryptocurrency is not banned or illegal in India. It is surely unregulated and not centralised yet, but that doesn’t mean it is against the law. Anyone can freely invest in Cryptocurrency via various exchange platforms. The status of crypto was crucial in 2018, but the baseless rumours about a ban on crypto was ruled over by the Supreme Court of India. But if you live in China or Russia, then crypto is a big red flag for you.
8. Cheap doesn’t means it’s good
There are coins in the market that value only $1 and it might seem attractive and alluring but that doesn’t mean it is safe and secure. Coins that are cheap and give amazing returns with promising security of Transactions are very rare. And such Blockchain technology where people are more attracted are also exposed to security threats. So one needs to beware from investing in coins that are only cheap and not reliable. You need to research the security model, it’s utility etc. in order to be sure about your investment. Also, a coin with 0.5 USD value can be more costly than a coin thats a 500 USD value. Learn the concept of marketcap.
Also Read: Mistakes that can wipe out your portfolio
9. Time is money
The entire concept of the making money in the crypto asset market depends on time. The investor needs to know that timing is the key to earning good returns on any investment. The time to Invest, hold, stake or sell crypto should be carefully analysed and then chosen. Investing in crypto at the time when the coin has taken a beating and is already trading low is the most preferable. Holding Bitcoin and top 2-3 alts over a long time can give you good returns as well. Booking profit is also necessary. Being too greedy or too scared doesn’t go well with an investor.
10. Dollar-cost Averaging
Dollar Cost Averaging is an investment strategy that helps the investors to eliminate any investment based on emotions. The investor aims to dilute the price fluctuations by distributing his purchase across predefined intervals. This plan eliminates any major losses by smoothening your purchase price. This helps to avoid the volatility in the crypto market and also benefits the investors while making rational decisions. DCA saves your cost by buying crypto assets when the prices are low and helps you in regular savings by adding money in your investment account regularly.
Now that you read our article on ‘10 things to know Before Investing in Cryptocurrency‘, do share with us in comments what you think our fellow readers should know more apart from what we have mentioned.