Cryptocurrencies represent a potentially thrilling and lucrative investment, but is it worth the risk? The recent acceptance of Bitcoin on Wall Street and the skyrocketing prices of upcoming cryptocurrencies are tempting to many newcomers. However, while investing in digital currencies can yield massive returns, you can also lose your investment. Therefore, before you invest your hard-earned money into digital currencies, you should consider the following factors.
Understand the Value Proposition
When you buy cryptocurrencies to sell at a higher price, that is not a value proposition and shouldn’t motivate you to buy them. Instead, find out the developers’ goals, including the gaps they are trying to fill in the market before investing in the digital currency. For instance, a unique Cryptocurrency project with achievable objectives is likely to succeed and maintain steady growth despite the market volatility. Therefore, you should understand the market and do a thorough analysis before committing your money to an investment.
Assess the Risks Involved
Before you invest in any digital currency, ensure you assess your risk tolerance. For instance, how much cash are you willing to lose if the investment does not yield returns? Crypto investments are riskier compared to other assets due to their market volatility. At some point, the value of cryptocurrency may drop or rise due to the market demand and supply. Apart from fluctuating values, most digital currencies are unregulated, don’t have any insurance or a buyer of last resort. That means, if the prices drop drastically, you cannot recoup your investment. Don’t let the glow of the bull market fool you into investing your life savings.
Watch out for Scammers
Digital currencies are scammers’ favorite hunting grounds, and many have fallen prey and lost a lot of money. If you are a newcomer, research the legit cryptocurrency exchanges and understand the market. Most scammers will ask you to send crypto coins with a promise of doubling your investment overnight. If an investment sounds too good, it is probably a fraud, and you should verify before committing your money. Apart from scammers, it would be best to watch out for crypto exchanges with questionable practices. For instance, some exchanges allow you to borrow up to 99% of your investment, but they will take all your profits if the coin rises in value.
Pick the Right Digital Currency
You must analyze every coin to determine its viability. While Bitcoin seems stable and attractive to invest in, its market valuation has reached the threshold, and the prospects of it growing further are unlikely. That means investing in some of the upcoming coins may be a lucrative investment. However, you should not dismiss bitcoin completely; many businesses embrace it for transactions like buying gift cards and other items. Besides, when you buy gift cards with cryptocurrencies, the transaction is untraceable.
You should research the trending coins and identify the crypto that still holds potential or is poised to skyrocket at any time. While new coins are lucrative, you should understand their history and the developer behind them. Most coins with no backing won’t last the first two years, and you can lose money.
Most successful crypto investors understand the history of the coins and have a long-term view. Researching the past performance will give you insights into the best performances of the crypto and its lowest price. You should also read analyses from crypto experts to know the best time to cash out and the best time to hold on to the investment. For instance, when bitcoin was still new, the initial investors saw their returns drop, but those who held on later gained over 300% within three years when its value rose. When you have a long-term view, you won’t be moved by short-term changes in value.
The pitfalls and risks of investing in crypto should not scare you from a potentially lucrative investment. However, you should pay attention to the market and verify every piece of information instead of blindly following others. Nowadays, investing in crypto is easy since you can buy bitcoin with credit card and enjoy fantastic returns.
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