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3 minutes read

Is Cryptocurrency A Good Investment? 5 Things To Know Before Investing

| Published on April 28, 2020

Cryptocurrency can be a good investment if you know how to play your cards well. While there have been critics of cryptocurrencies all along, many are surprised to see that the crypto market has not been slowing down at all; rather, it has been expanding at an incredible rate.

Cryptocurrencies emerged as decentralized digital currencies that were beyond the controls of banks and governmental institutions. The Bitcoin was the first to make its entry into the crypto space way back in 2008 when it was developed by a mysterious individual or group of individuals called Satoshi Nakamoto. Since then many other crypto coins have steadily crept into the crypto world and started competing against the Bitcoin. In spite of speculated news like bitcoin era truffa or scam, the bitcoin trade is on the rise as automated trading bots contribute to the speed of bitcoin trading. Before investing in any of these, it is important to keep some things in mind:

  1. To begin with, you must be aware of the risks that crypto investments entail. While the prospect of rewards may be high in crypto coins, the risks of losses are equally high. When you invest into an ICO, it is like investing a startup; there is no guarantee it will stay afloat. Most crypto coins, especially tokens that are still in a nascent state, are easier to manipulate and illiquid.
  2. Another tip before investing in cryptocurrencies is that you should always start with small amounts. While there many some tokens whose prices are shooting up there are huge risks involved. So, it would be unwise to put in a lot of money into any single crypto asset. Your exposure to crypto must be at a reasonable level; it should only be a small percentage of your total investment portfolio. This exposure limit can vary from one individual to another, depending on your wealth and income. Besides, you must spread your investments across multiple crypto assets. It is foolishness to keep all your eggs in one basket; that way you stand to lose everything when trades go south.
  3. You must also make your investments carefully. If you try to purchase crypto tokens when there is an acute market correction, you can actually shop around for the good tokens at great discounts. Your job is to search for big economic moats, a term popularized by Warren Buffet, a successful Bitcoin investor himself. The economic moat indicates the level of competition the issuer faces. There are business models which are tougher to copy. While most coins will have the same function and similar market caps, it is important to buy those which are unique if you are to stay safe.
  4. You cannot hope to enjoy success in crypto investments without doing your own research. It is wrong to follow rumors and hearsay. You can analyze whitepapers that are readily available for every crypto asset and make your own decisions. You should be able to differentiate between a good and a bad startup. You need to ensure that the founders of the asset you choose have proper credentials, reputation and expertise. The asset should also be backed by big organizations. Alternatively, you can get expert advice from the financial gurus.
  5. Finally, you have to learn the art of technical analysis to be successful as a crypto investor. This means you must be able to read trade charts and graphs, interpret market behavior and price movements.

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