For many, the world of cryptocurrency is enticing. After all, most people remember when Bitcoin made headlines when its value soared, and getting your hands on the next big success could be life-changing. However, it is important to be smart before you commit your hard-earned money. If you are thinking about taking the leap, here’s what you need to know.
Welcome to a Volatile World
If there is one word that clearly defines the world of cryptocurrency it’s “volatility.” For example, the price of Bitcoin skyrocketed, rising by more than 2,000 percent, in 2017, reaching a stunning $20,000. But, by early 2018, it fell by over 50 percent. Now, Bitcoin is sitting around $3,600. That’s a far cry from the high it experienced just 13 months ago.
Investing in cryptocurrencies is like jumping on a rollercoaster. There are going to be ups and downs along the way. Some may reach amazing heights while others bottom out, essentially being worth nothing.
A reason for the volatility is that cryptocurrencies aren’t really backed by anything. It’s not like a stock, where it is backed by the value of a company producing goods or offering services, or like regular currency, like the dollar. Instead, cryptocurrencies derive their value solely from the market; it is worth what someone is willing to pay for it.
Don’t Let FOMO Take Control
When cryptocurrencies took off in late 2017, many people felt like they missed out. As a result, “fear of missing out” (FOMO) began to take control, leading some to bad decisions because they didn’t want to miss the bus.
As with any investment, you need to proceed with caution. Don’t give into the hype when you are making decisions. Instead, do your research and see if any cryptocurrencies make sense. If nothing does, don’t just make a random investment to get in the game. Instead, keep researching until you find something that does.
Regulation is on the Horizon
Governments around the world have taken notice of the cryptocurrency market, and that means one thing; regulations are coming. While some regulation could be beneficial, reducing the number of scams that infiltrate the market and creating mechanisms that could provide stability, it will also impact how cryptocurrencies can be bought, sold, and used.
Exactly how regulation will impact cryptocurrencies is hard to say. The impact likely won’t be known until some are put in place, giving people a chance to view how they influence the market. Today, some of cryptocurrency’s appeal is the degree of privacy investors can maintain. In fact, some keep transactions completely anonymous.
However, there is no guarantee that the same degree of privacy will be allowed down the road. After all, anonymous transactions could be incredibly attractive for those looking to perform certain illegal activities, so it wouldn’t come as a shock if governments try to focus some level of identification.
Theft, Hacks, and Loss
A shocking number of cryptocurrencies have been outright scams. This left investors with nothing of value; they were merely taken for a ride.
Bitcoin Platinum is just one example of a coin that was entirely a scam. This Bitcoin fork was created solely as a means for its creator to profit from shorting Bitcoin, and essentially nothing more.
Theft is also troublesome in the world of cryptocurrency. When you buy a coin, the asset is entirely digital and kept in a digital wallet. Often, if your wallet is hacked and your coins are stolen, there’s nothing you can do. In most cases, your investment is not insured at all, so you just lose your money. A single hack in late 2017 led to the theft of more than $60 million in Bitcoin (based on its value at the time).
Finally, if you lose track of your digital wallet, you won’t see your coins again. This can happen if you lock yourself out of your wallet, delete a locally stored wallet (such as one on your personal hard drive), or simply forget where yours is located.
Should You Invest in Cryptocurrency?
Whether you should invest in cryptocurrency is a personal choice. The market is incredibly volatile, so a cryptocurrency that is worth hundreds or thousands today could be worth nothing tomorrow. Plus, the market is essentially unregulated, so you won’t benefit from the protection you would get by investing in stocks, bonds, or similar securities.
If you do decide to invest, only commit an amount of money that you are willing to completely lose. This isn’t the place for your retirement or college savings, as you could easily end up with nothing in the end.
Sure, there is a chance the market will hit new highs down the road, but it also may not. Before you invest in any coin, do your research, make sure it isn’t a scam, and don’t let FOMO decide for you. That way, at least you are trying to make a smart decision, and that is the best anyone can do when it comes to cryptos.
Have you invested in cryptocurrency? Tell us about your experience in the comments below.
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