Elon Musk’s last tweet about cryptocurrency got you thinking should I also invest in cryptocurrency? Or one of your colleagues is gaining huge profit from investing in cryptocurrency and this has poked you into considering cryptocurrency investment. Whichever the case, you haven’t yet made up your mind to invest and you definitely are not alone in this joyride.
While there are many investment options available, investing in a digital currency seems to be the smart way since it surely is the talk of the town in the investment world. However, let this notion not be the sole motivational factor to guide you into investing in cryptocurrency. Because there is so much more to it that you should know.
Before diving into the shoulds and should nots, let us try to see who all are into cryptocurrency the most.
As seen in the table above, the GenZ and millennials are flocking toward cryptocurrency. One of the primary reasons for this is–cryptocurrency is highly volatile and the present generation is more risk-taking, unlike previous generations. Hence, from a psychological viewpoint, youngsters are more likely to invest in this currency.
Another important factor here is the demographics. The rules regarding investing in cryptocurrency and the platforms are different for each country. For instance, you can buy USDT on Moonpay if you are a U.S. citizen, however, if you are an Indian, you will have to use different platforms like WazirX or CoinDCX.
Well, this is all for the facts and stats about cryptocurrency. Now, if you want to take a dive into this domain, there are certain things you must know.
In this article, we will learn about seven important things to consider before investing in cryptocurrency.
7 Things to consider before investing in cryptocurrency
Whether you are a newbie to the crypto world or someone with little idea of cryptocurrency, there are certain should-know things before you invest your money in this digital asset. Without further ado, let’s have a look at the below listed seven things to consider.
Know your why
Why do you want to invest in cryptocurrency? Depending on your age, experience and knowledge in the domain, your answer might differ. However, you should know the exact reason why you want to invest in it. Is it because of the trendiness or because your friend/colleague has been boasting about it of late?
Of the myriad invested options that provide security and guaranteed fixed returns, why do you still want to invest in crypto? Needless to say, this is something only you can know for yourself. You might have your won persona investment goals or want to explore the crypto space.
Whatever the reason might be, if you are clear with your purpose, you are more likely to enjoy the process.
Look out for Scammers
Beware of the fear of missing out (FOMO)!
Cryptocurrency scams rose to 3.2 billion dollars worth of cryptocurrency. Scammers often try to create a sense of FOMO. So it is advisable to always go through the news sites and websites that are full of unbiased reviewers and then invest. This will help you make an informed decision and save you from being a potential victim of a scam.
Plus, with increasing hype on social media, you may come across many investment strategies that promise high returns by investing in certain crypto assets. Some will create rumors about how the prices of bitcoins are about to rise and lure you into buying. Hence, being informed about and updated about crypto affairs is necessary.
Build an investment strategy
If you aim to be a successful investor, always have a plan for your cryptocurrency assets. Setting a limit order for Bitcoin to automatically get sold when prices hit a certain level or diversifying your portfolio, etc are also included in building an investment strategy. Building a strategy should include the following points:
- You should know your why
- You should have knowledge about the cryptocurrency you want to invest into
- Know how much money you want to invest and why
- Think of ways to be smarter than the market
It is better to have a strategy planned out and written somewhere so that you can return to these in times of chaos.
Timing is key
While you may know how volatile the crypto market is. Especially cryptocurrencies like Bitcoin and Ethereum fluctuate widely without any notice. Usually, most investors follow the “buy the dip” approach which means they purchase the coin when its price falls.
Unline other traditional equity markets, crypto markets remain open 24/7. This means you can buy and sell it any time of the day!
It is scarce
A bitcoin is worth thousands of U.S. dollars today. Why do you think is a single coin so valuable? Well, because it is available in a limited supply. For any asset to hold value, it must not be available in huge amounts or should at least be difficult to gain.
If we talk about bitcoins, about 900 are mined every day and the maximum amount that can ever exist is 21 million. This limited supply and mining are what makes it so worthy.
Don’t forget to diversify
Whether you are investing in stocks or cryptocurrency, the traditional principles of having a diversified portfolio don’t just go into the bin. If you have a long-term plan for building wealth over time, then portfolio diversification is a must.
How do you diversify your portfolio? You can invest a small amount of your total money into cryptocurrency or you can spread your investment across different digital assets.
The primary reason to diversify is to reduce the overall risk and loss.
All cryptocurrencies have varying use cases
How has Bitcoin left a mark in your mind? It initially received fame as a digital asset that could be used in place of money. Remember the image of people buying a pizza with bitcoin? However, the crypto world is not just about finance, it is also about technology. After all, all cryptocurrencies are not meant for trading.
For example, EOS is a platform aiming to help decentralized apps match centralized (nono-blockchain) apps. Some are simply used for entertainment or gambling.
Know the ways to store them
There are different ways to store your cryptocurrency. You can store it in a virtual wallet or you can even hold it in a hot or cold wallet. Hot wallets are located on the internet which is why you can easily access them from anywhere. Many cryptocurrencies have their own wallets. For example, Coinbase has its own cloud wallet that you can use to hold your investment.
While cold wallets hold your cryptocurrency in offline devices like USB and pen drives. The major disadvantage of cold wallets is that you may lose that device and cannot access your investment. It is up to you to choose any way that is easy for you.
Wrapping up things to consider before investing in cryptocurrency
As tempting as it might be to invest in a new cryptocurrency, do not forget to do your research properly. As we now know the crypto market is extremely volatile, you first need to know if you are someone who could bear the highs and the lows. If not, considering Mutual Funds, SIPs or other safe investment options might be more beneficial for you.
It is also important to know how blockchain works or how can decentralization (which lies at the base of blockchain technology) benefits investors. You may not dig deep into this, but having a vague idea about the concept will increase familiarity and you can better track your investments.
Author Bio:
Parita Pandya is an Engineer turned Writer. She usually finds herself writing for businesses. When she is not writing, she is either strumming her guitar or penning her thoughts down on paritapandya.com.
Press releases or guest posts published by Wealth Growth Insights have sent by companies or their representatives. Wealth Growth Insights is not part of any of these agencies, projects or platforms. At Wealth Growth Insights we do not give investment advice and encourage our readers to do their own research.
