Crypto wallets, blockchain, bitcoin, mining, and public ledgers. Yes, the digital world of cryptocurrency can be confusing. As an investor, the how-to can be a little bit daunting.
Cryptocurrencies are a new investment class with little data for analysis or historical evidence of performance. There are a few things to keep in mind when entering the high-risk, high-reward arena of digital currency.
If you’re an investor looking to approach cryptocurrency, we’re going to highlight some important tips as to how to go about investing in the exchange. For starters, cryptocurrency aims to create a decentralized financial system that has never been seen before on the economic spectrum. The initial appeal with crypto is that the currency is beyond the control of governments and banks, which has piqued the interest of investors across the globe.
Cryptocurrency toes the line of being a new form of money and a highly volatile investment asset. Pro crypto investors think the exchange is a digital stepping stone towards a newfound economic future while skeptics think the risky digital market is too immature.
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If you’re interested in approaching cryptocurrency as an investor, we’ve put together a guideline of things you need to know. We should preface that a good dose of suspicion would be a wise place to start when it comes to the new digital exchange and urge investors that you shouldn’t invest if it takes away from other goals and financial fundamentals like paying off debt, building emergency funds, or maxing out your retirement accounts.
We’d recommend employing the same mindset you would approach with any other traditional investment strategy.
Here’s what ResearchFDI thinks investors should do to approach cryptocurrency:
Prepare yourself to lose
Similarly, with any investment, financial gains are not guaranteed with cryptocurrency. You might even be cautioned to approach crypto like a lottery ticket instead of an investment strategy. As a high-risk, high-reward investment, investors should keep crypto investments in perspective. Nate Nieri, a CFP with Modern Money Management in California, says investors have a “high chance of losing it all, but a small chance of winning it big.” Nieri cautions investors not to gamble an amount that would burden their families or prevent them from achieving their goals.
Hedge your bets
Even as an investor with a high-risk appetite, start trading with small amounts and invest only what you’re willing to lose. Vikram Subburaj, the CEO of Giottus Cryptocurrency Exchange — India’s biggest currency exchange says investors shouldn’t put more than 2% of their overall portfolio into crypto. “After you get familiar with the arena, read up about various coins and understand their value and prospects, before you allocate more,” advises Subburaj.
Be weary
Since cryptocurrencies are not regulated and new digital outfits and trends bloom every day, it’s important to be careful when choosing which type of crypto you’re investing into. We’d recommend investing through an established and trustworthy platform to ensure that your money doesn’t get lost if there is a regulatory setback or the promoting company goes under.
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Buy bluechips
Like the stock markets, crypto has bluechips, mid-caps, and penny coins. Bigger and more well-known crypto coins can be costlier and stable while obscure coins can be tempting at a low price (which may not pay off.)
Bitcoin is the bluechip of the crypto world and drives the overall market. We’d advise investors to focus on the bluechip coins like Bitcoin and Ethereum, with some of your money split towards emerging options like Litecoin and Matic.
This is because widely-held crypto with large market capitalization is less likely to be manipulated than coins that are closely held by a few parties.
Keep an eye on global developments
You could be buying and selling crypto in North America and be affected by digital developments in Asia. The crypto market is spread out across the globe and any worldwide development can impact prices. So investors need to be aware of what is happening in key markets like the US, India, Singapore, and
Even though you may be buying and selling in India, the crypto market is spread across the world. Any global development can impact prices, so one needs to be abreast with what is happening in key markets like the US, Singapore, Amsterdam, Tel Aviv, and London (to name a few.)
The crypto market never sleeps meaning that trading can be done 24 hours a day seven days a week. Investors can trade at any time of day, unlike stock markets where investors have to wait for trading to open on business days. With that said, digital investors need to be weary that crypto markets can change at any time of day and have cascading global effects.
Essentially, it’s a full-time job — which can be done from anywhere.
What does the future of crypto look like?
It’s impossible to foresee what the future holds for cryptocurrency but many financial experts believe it could become a newfound currency option. If nothing else, the blockchain tech which powers cryptocurrencies could drive innovation in the financial fiat field as well.
The waters are somewhat murky, however. If criminals take advantage of crypto being virtually untraceable and hold people, organizations, and even governments at ransom, it is difficult to imagine a way for governing bodies around the world to not clamp down on cryptos.
The US Federal Reserve is also researching the prospect of developing its own national digital currency which would have seismic effects on leading cryptocurrencies. For an investment class that is still in relative infancy, the influence of more robust government regulation could be significant.
Another caveat of cryptocurrency’s susceptibility is the influence the market has on celebrities and public figures. As an example, Elon Musk the CEO of Tesla, has shown his ability to move markets with so little of a tweet or TV promotional appearance, capable of skyrocketing or plummeting a specific cryptocurrency instantly.
In the emerging field with very few rules and norms, some universal truths for investors need to be contemplated before pouring money into the digital market.
Have you invested in cryptocurrencies? Do you have any reservations or tips for investors going forward? Let us know through the ResearchFDI Twitter and LinkedIn channels!
