What is cryptocurrency? And why should you invest in it?
A cryptocurrency is a form of digital asset based on a network that is distributed across a large number of computers. The advantage of crypto is that the decentralised structure allow them to exist outside the control of governments and central authorities.
Cryptocurrencies have been described as a transformative technology that could disrupt a number of industries, including finance and law. Crypto may also provide a safe store of value due to the fact that they cannot be printed and have a limited supply.
Stocks vs. Crypto
If you have invested before, it is most likely the purchase of for example Company A’s stock. Stocks are one of the many forms of investment. When you purchase a company’s stock, it means you own a share in the company that issued the stock. If the stock price rises, so do the value of your holdings.
If you are new to crypto, you’ve probably heard the bad side about crypto such as having no intrinsic value. This may make you think twice about making your first purchase in the crypto space.
Hence, here’s five things you should consider and ask yourself before taking the plunge.
1) Can you handle the extreme volatility?
Cryptocurrencies are extremely volatile ever since it was publicly traded. They are mainly not backed by a tangible asset, and thus the price they trade at is largely determined by demand and supply.
You can make a fortune or lose your entire funds easily. The coin you choose to invest in will decide the outcome. Blue chips like Bitcoin and Ethereum are seen as relatively safer investments.
Are you ready to see the value of your portfolio decrease double digit in percentage terms in a day? If not, look elsewhere.
2) What is your risk tolerance?
This question correlates to the first as a higher risk appetite is needed to not be emotionally affected should you see your portfolio decrease by half.
There’s no guarantee that crypto won’t collapse entirely. Hence, it is worth considering how you would feel if everything you have in crypto became worthless overnight.
3) What is your intention when investing in crypto?
When one invests, one is of course looking to profit from it.
But, are you investing in crypto because you’ve heard that there’s a 17 year old who made millions through crypto?
Are you investing because you’ve heard that it is very easy to make lots of money in a short amount of time?
If yes, then you are at the wrong place.
4) Are you educated in crypto?
Bitcoin was created in 2009 on the heels of the economic recession and have been in existence for almost 13 years. For such a young asset class, it is difficult to filter out the good and bad educational resources in the plethora of online information. Deep research and self-study is imperative to set you up for success.
5) Which crypto would you buy?
There are thousands of cryptocurrencies and many of them fail. Any one can create a token and list it on a DEX for trading.
Bitcoin was the first crypto and remains the biggest and most popular thus far. Blue chips like BTC and ETH can almost never go wrong whereas memecoins like DOGE and SHIB carry much more risks and could potentially go to zero.
Investing in crypto can be a rollercoaster ride at times because you can feel a sense of euphoria this moment and a state of misery the next moment.
If you are not ready to handle such emotions and be ready to lose everything at the same time, it is best that you avoid investing in crypto entirely.
[Editor’s Note: This article does not represent financial advice. Please do your own research before investing.]
Featured Image Credit: Time