In past few years, cryptocurrencies have been the most trending investment people are looking into. Obviously, due to its potential, a lot of people including individual investors and groups of companies are already keying into this opportunity especially the once that could be traded on exchanges. According to the 2018 cryptocurrency survey by Foley and Lardner LLP, majority of respondents (72%) support the opportunity to invest in exchange-traded funds holding cryptocurrencies.
While most investors are more focused on the benefit lurking around cryptocurrencies, have it in mind that it is not risk-free. Thus, you’ll have to sharpen your risk management plan if you really want to cut from this big cake. Crypto investment is no different from forex, stocks etc.in other words, it’s not something you just rush into, just because you found their ads attractive, or because a friend has already invested.
Therefore, as an investor gunning for profits, its very paramount that you carry out your own deep research before you invest your money on any cryptocurrency.
However, here are 5 important things you need to know before pumping in you money into any cryptocurrency.
#1 You need to know why you’re investing
Honestly, if you want to make something out of investing in cryptocurrencies, then, you have to take this part very serious. This is not the case where you allow Google to run the show of ‘’ why should i invest my money on cryptocurrencies?’’ It goes beyond this because the answer you’ll get from Google is someone else’s reason for investment. Meanwhile, You are and still you, and thats why your own reason why you should invest in cryptocurrency should still differ from another person’s.
Do you know that making any investment whether cryptocurrency or forex or stocks without knowing why you’re investing could lead to an outrageous ruins? That’s why you find financial counselors alarming on this. Perhaps one of your major reasons is to make quick money, save up, or to even show off; but still, you still need to know ‘why.’ Apparently, so far, cryptocurrencies are known to be highly speculative — which simply means that you can make lots of money in a short while, and you can also lose a lot money too.
Also, after you’ve defined your reasons for investment, your answers will not only guide you but it will also enable you know what type of investment-gain are you looking at; whether it is short-term gain or long term-investment gain. Gradually, you’ll be able to map out the exact strategy (risk management plan) that will see you through. On the other hand, if you’re still uncertain on which direction to go on this, you might end up developing a plan that might ruin your chances of earning from your investment.
More importantly, no matter how funny your reasons of investment might be, don’t invest what you can’t afford to lose. In other word, don’t gamble your money away just because you felt it might do well if you give it a try.
Here is a case study of two potential crypto investors, Tony and Femi. They both had about $1000 as savings in their various accounts. It happens that Tony and Femi came across a crypto investment, moved by its potential and how quickly they could make lots of money by investing, they made up their minds to invest. Tony invested all he had while Femi invested 10%($100) of his savings to see how far the crypto coin will favour him in short-term. Exactly two weeks later, the USD exchange value of the ‘cryptocurrency’ dropped by 50%. In other words Tony’s invested $1000 is now worth $500 and Femi’s invested $100 is now worth $50.
From this case study, you’ll see how crucial investors should take this — investing only what you can afford to lose. I’m not saying that the volatility nature of the cryptocurrency can not be favoured positively, in fact it could appreciate by 1000% within 1 month, but, it’s still advisable that you don’t always get swayed by the positive sides alone, you should also consider the negative sides as well.
#2 Understand every necessary terminologies associated to cryptocurrencies:
After you’ve known why you’re investing in cryptocurrencies, here is another important aspect you need to get abreast with. Understanding these terminologies will obviously give you a head way by enabling you know what cryptocurrency is all about especially when you are entirely in to make a living from investing on cryptocurrencies. ( Read more on the crypto terminologies)
Do you know that ignoring this section could jeopardize your hard earned money? In fact, it’s similar to giving a man who don’t know how to drive a car key to go drive your newly bought car. No wonder Warren Buffett said ‘’ Never invest in a business you cannot understand.’’ Literally, most investors often forget this advice, especially when they’ve had some successes in some finance-related event . They unknowingly get trapped by this illusion — believing that the successes they had in areas they know best will automatically allow them to seamlessly analyze any other related businesses, but that isn’t always the case.
Meanwhile, here are some important terminologies on cryptocurrency you need to be more conscious about;
FOMO: Fear of missing out is one of the terminologies that get most crypto investors confused especially newbies. As a crypto investor, gunning to make profits , it very much advisable that you don’t invest in a particular coin just because of the fear of missing out. Let’s take Bitcoin as a case study, ranging from November 2017 to Jan 2018: As at early November 2017, several numbers of people all over the world were investing heavily on bitcoin because of its dramatic appreciation in the crypto market. At that time you might double or even triple your money in a week just by investing in bitcoin.
So, FOMO took over some investors and convinced them further into investing in Bitcoin because they don’t want to miss out of this opportunity. Consequently, their decision has obviously costed them much, the Bitcoin market value has plummeted from $19,780 ( ATH) to $6,710 as at the time of this writing. Meanwhile, if they had done their homework on Bitcoin before investing, they would have considered the risk involved before putting in their money.
FUD: Fear, Uncertainty and Disinformation is another term you need to keep in mind. The internet has made much easier for adulterated news to air itself. In fact, most of them are full of uncertainties and could be destructive if held to. Hence, you have to be careful with the sites you visit to get your information on cryptocurrencies.
More importantly, note that there are parties whose job are to spread fear, uncertain and disinformation. So, if you are really out to tap from this limitless opportunity in the crypto market, it is advisable that you learn to separate the fruit from the weed.
#3 Research on the industry (cryptocurrency)
Researching on the industry you are about to get involved with is another essential thing to do before pumping in your money. This process does not only enable you to have a feel of the industry, it is also a medium for you to thorougly investigate on the authenticity of the cryptocurrency– to know if they are scamsters masquerading their intention by selling out their coins. Please also note that their are over two thousand coins in existence aside bitcoin and more still comes into the crypto-market daily.
Failure to carry out a solid research on this can cost you more financial ruin than you could imagine. That’s why it is pretty much advisable that you take this part very serious.
“I don’t know what to research about in this coin i want to invest my money on,’’ well, if you are that fellow, here are core areas you need to verify its authenticity through deep research:
Research on the security of the coin: The security of the cryptocurrency centres on the following– how often have the industry been under hacks? Are the hackers making consistent success anytime they attack? While nothing is 100 perfect, whats the nature of their security breaches?
Your answers from the above questions will serve as a benchmark on what action to take next on the cryptocurrency investment. Of course you can’t invest your money on a digital currency that is often under cyber attack. In fact a recent survey by Foley and Lardner on cryptocurrency security concluded that “Hackers and Security breaches are seen to be the most pressing threats to the viability and growth of the cryptocurrency industry, though manipulative trading of crypto currencies and fraudulent offerings are also high on respondents’ rader.’’
Investigate on the stability of the coin: Here is another crucial section where you need to focus your energy on. All you need to do is to go through the chart history record of the ‘currency’ you’re about to invest on and track how it has been increasing in value.
The utility value of the cryptocurrency: Determining the utility value of a coin is very important. You have to investigate if the currency is just for the members of the industry? Can it be traded against any other fiat or cryptocurrency? Can you use it to buy things both online or even when you travel to another country and so on?
Preferably as an investor, it’s very much advisable that you Do Your Own Research ( DYOR)
#4 Understand and maximize ‘timing’:
This is where the success lies. Your understanding about cryptocurrency investment and how you maximize the right timing for execution is a function of how much you gain or lose. Unfortunately, majority of crypto traders or investor overlook this aspect. Some even think they could buy and sell any time they want to which is very wrong. That is not the key to making profit from your investment. Actually, knowing the best time to either buy or sell is the key to making profits.
However, it’s no surprising that some investors are still confused on when to either buy or sell. Don’t feel bad about; in fact, its natural for you to get scared when you want to invest or pull off your money. This is where you need to understand the cryptocurrency you’re dealing with. Every decision you make here counts. In other to pull through, you need to do your homework on knowing when to carry out any execution.
Note that every cryptocurrency has its own timing opportunity. Don’t use crypto A analysis to make decision on crypto B.
#5 You need to know the downside and risks of investing in cryptocurrencies:
Just like any other investment, investing in cryptocurrencies has its own downsides and risks you need to be abreast with. However, here are few list of potential downsides and risks of investing in cryptocurrency.
Volatility: Cryptocurrencies are considered to be the most volatile digital asset in this millenial. In other words its price value could change within a twinkle of an eye. Let’s take X-coin for instance, where X is could be any digital currency. If X coin value is worth about $330 at about 4:57 am 31 August 2018, due to the volatility nature of cryptocurrencies, within a week, X-coin has the ability to steeply increase to $450 or decrease to $210, where $120 is the price increase or decrease in X-coin value.
Theft risk: Due to its digital nature, it is more prone digital risks like cyber attack– hacking and user error. In the past few months, cryptocurrencies have surffered a big loss through hacking. Do you know that just recently, over $60 million worth of bitcoin was stolen from NiceHash? One thing is sure, the limitless opportunity residing around cryptocurrencies will facilitates scamsters and hackers to lurk unto them like heat seeking missile. However, while this vulnerability could be due to one factor or the other, crypto developers are working tirelessly towards enhancing their securities, making their coin a hack-free cryptocurrencies. Therefore before investing, its advisable that you do your homework well before putting your hard earned money.
Misplacement or Password: Many investors have suffered this faith. They’ve accidentally lost their coin by losing their password. Actually, a study by Chainanalysis, a digital forensics firm that studies the bitcoin blockchain reported that about 3.79 million bitcoins are already gone for good based on high estimate and — 2.87 million based on a low one. About 17 to 23% of existing bitcoins(at $8500 each) today as of the time of the writing are lost. Some of the world’s renowned tech enthusiast like Elon Musk and so on were also part of the loss. More importantly, you need to know this: once you bitcoin or any cryptocurrency you are about to invest on is lost, its lost forever.
Utility of the Cryptocurrency: Do you know that one of the biggest challenges faced in the cryptosphere is peoples’ perception about cryptocurrencies? In some part of the world today, some people still find it difficult to accept bitcoin and other altcoin as a means of payment. Although you could find some online retailers accepting bitcoin as a payment, but still your inability to pay your cell-phone bills and buy some toiletries or groceries with cryptocurrencies in some places defeats its recognition as a ‘’currency.’’
Additionally, while there are cryptocurrencies that could be exchanged for goods and services, as an investor, you should invest in such cryptocurrency, because any currency that can’t be exchanged for goods and services is not serving its money-purpose.
Cryptocurrencies have also contributed to illegal and illicit activities:
How, you may ask?
Due to its anonymous and untraceable nature of cryptocurrencies, several illicit activities like drugs, sex, assassin, illegal trades are done with ease using cryptocurrencies.
In conclusion: Knowing the above mentioned before investing into cryptocurrencies will definitely guide you whenever you are set to invest.