What Every Investor Should Know Before Buying Cryptocurrency

by Mary Ann Callahan

If you are here, then you have probably grown curious enough to find out more about the next big investment opportunity everyone has been screaming about. Techies call cryptocurrency the money of the future or digital gold, and skeptics refer to it as a bubble that will burst anytime soon or the biggest digital scam ever.

Needless to say, beyond the initial noise that surrounded the global rise of cryptocurrencies, there seems to be a growing interest and increasing curiosity about the potentials of these digital coins. New investors are attracted by the fact that cryptocurrency has managed to turn many who have been bold enough to put in their money into billionaires. This has raised a nagging question of what cryptocurrency is and what exactly you need to know before investing.

What are cryptocurrencies?

In clear and simple terms, cryptocurrency refers to “digital money”. Now, there are a lot of technical jargon and complex explanations that will be thrown at you if you seek a deeper knowledge into the origin and how crypto coins came to be.

So, we’ll skip the part about the technology behind it and simply state that the first cryptocurrency which is Bitcoin was the product of Satoshi Nakamoto’s attempt to create a peer-to-peer electronic cash system. A genius creation, all the same, functions on blockchain technology and is completely decentralized, which means it is independent of banks, governments, and other institutions. Cryptocurrencies are also independent of any form of physical asset backing.

To buy or sell Bitcoin or any other cryptocurrency, you need to sign up for an exchange platform and begin trading. There are a number of options available to you if you decide to get in on the trade with cryptocurrency, be the market leader Bitcoin or any prominent altcoin. Still, each coin has its own specific value and dynamics, which you must understand before investing.

Why the buzz about cryptocurrencies?

Asides the obvious fact that Bitcoin and other digital coins are hugely profitable, there are a lot of advantages that you stand to benefit from in buying cryptocurrencies over holding traditional assets and physical cash.

Stability: many people have probably told you about the highly volatile nature of cryptocurrencies, how they can be sky-high today and plummet to a disappointing low tomorrow. To be fair, they are right in their assessment, and it’s a known fact that digital coins are quite volatile. But, in the long run, having cryptocurrencies as a global store of value offers an advantage to people who live in regions with less monetary and political stability. The fact that cryptocurrencies are decentralized means the value of your investment is independent of the political and economic situation of any country. It is a world currency of some sort, and its value is universal, making it an excellent choice for investors whose traditional currency is quite unstable.

Anonymity: cryptocurrency offers a way to carry out transactions without leaving any digital or physical footprint. Transactions with digital coins are encrypted, which is the direct opposite of what operates with normal cash or credit card transactions. This eliminates the risk of frauds in form of counterfeit cheques and other illegalities that commonly plague regular transactions, as well as security challenges such as hacks, which can lead to huge losses.

Universally acceptable: as mentioned earlier, a decentralized system independent of political control means cryptocurrencies can be used globally without restrictions. Thus you can buy cryptocurrencies and hold them no matter where you are as long as you have access to the internet. With a global increase in the general acceptability of Bitcoin, some even foresee its potential to replace regular money in the near future and become a much more global form of exchange. However, this also leads to governments paying more attention to cryptocurrency regulation.

Is investing in cryptocurrency a good idea?

The answer to that question depends pretty much on your own view. Undeniable is the fact that cryptocurrencies are great investment options with huge potential for returns on investment.  But whether you gain or lose when buying and selling digital coins depends on various factors, just like every other profitable business out there. The volatility of the coin makes it a lot easier to make huge profits but equally makes losing all your investment quite possible.

Simple tips you should note

1. If you have made a decision to buy a stake in the world of cryptocurrencies and invest in some coins, you need to make a choice on which coin you want to capitalize. Regardless of whether it’s a popular crypto like Bitcoin or Ethereum or the less known one, you need to learn as much related information as possible. Deep understanding of the market is the key to making profits.
2. Once a decision has been made, you need to be wary of how much money you are willing to put in cryptocurrency. It is generally advised you put in only the amount of money that won’t have material adverse effect on your budget if you lose. As you are entering into a game where losing all is a foreseeable possibility, it’s always better to invest only what you are sure you can afford to lose.
3. As another rule of thumb, it is a great idea to research and choose a preferable investment plan or strategy. Do not make assumptions or carry over your knowledge of other forms of investment to trading crypto. Like any other market, it is a dynamic playing field with its own rules and working strategies. It is also not a market where you will turn into a millionaire overnight or simply sit and watch your investment grow. You need to get involved and participate in the market. Watch for falls and rises in prices and make investment decisions that are crucial to your profit.
4. It is also a great investment plan to have one or two “backup” coins which you can easily transfer your other cryptos to if you run into issues. It is unlikely that the entire market crashes at once, hence it is a smart option to have a contingency plan in case one platform fails.

Final word

Trading cryptocurrencies and making profit from it isn’t an automatic get-rich-quick scheme. There is a need to take your time to learn the process and understand how it works. Whether you decide to put your money in it at the end or not, should depend on your confidence in your ability to make it work more than anything else.