Cryptocurrencies have been a hot topic for the past few years, with stories of some people turning into overnight millionaires and others losing everything to unforeseen drops in the value of this mysterious currency. Try figuring out what it is, and you’ll be blasted with information that is either too vague or too complex, too deep or too superficial.
Following Warren Buffet’s advice of never investing in something you don’t understand then becomes pretty difficult. To make things easier for you, we’ve put together a primer on the basics of investing in cryptocurrencies. This will help you take a step in the right direction and avoid making uninformed decisions with your hard-earned money.
Why Invest in Cryptocurrency?
Aside from the opportunity to make a profit, there are a number of other reasons why people decide to invest in cryptocurrency. Some do it for the social vision behind the concept – that of a free, decentralized platform of hard money for the world. Others do it to safeguard their net worth from the failing economy.
These are all good reasons, but they’re of no use if you don’t understand what you’re getting into. In fact, the biggest reason for skepticism around cryptocurrency is the countless people who dropped everything they had in the hopes of making a quick buck, without doing any prior research. The point is, you should learn before investing.
Types of Coins
For most people, cryptocurrency and Bitcoin are the same thing. Up until 2016, other types of coins, also known as Altcoins, were a rather shady affair and Bitcoin was the only “real” option. This quickly changed during 2017, when Bitcoin’s crypto market share dropped from 90% to less than half that amount.
Today, there are more coins to choose from than you could possibly wrap your head around. Of course, not all of them are worth your time and you’ll need to thoroughly research each coin before investing. Litecoin, Ethereum, Dogecoin, and Dash are some of the most popular. Here’s a great resource that lists the most popular coins by market cap.
Risk What you can Afford
Cryptocurrency is significantly more volatile than other investment classes. Coupled with the risk that your country might just outlaw the exchange you should be comfortable with losing what you invest. That’s not to say there’s a huge chance that you will but sticking to what you can afford to lose will help you stay on the right track starting off.
Understanding a Cryptocurrency
Once you’ve allocated a wise investment budget and chosen a coin that you believe in, it’s time to do some research. The first step is to read a coin’s whitepaper. This helps you understand what the coin is about and why it exists. In other words, what it brings into the ecosystem. It will also give you an idea of whether the coin is worth investing in.
If the whitepaper is poorly written and the utility of the token isn’t properly explained, chances are it’s a no-go. Additionally, a coin that’s worth investing in should be surrounded by an enthusiastic and active community. There should be dedicated forums where you can discuss the topic with like-minded investors.
These forums will also serve as a valuable learning resource where you can discover new strategies and learn from the successes of other people. Finally, a coin that’s worth investing in should have a transparent and helpful team. They shouldn’t be promising “guaranteed returns” and making other pyramid scheme-like claims.
Of course, there’s a lot more to cryptocurrency than what is listed above. Be sure to spend some time doing thorough research on the subject and getting a decent understanding of what you’re getting into. This is key to helping you make more informed decisions when real money comes into play.