Cryptocurrency has been making headlines in every news outlet around the globe. These eye grabbing headlines have investors scratching their heads asking, “Should I invest in Cryptocurrency?”.
The short answer: Only invest what you can afford to lose.
This is not the same tune I sing when I talk about investing in the stock market. The stock market has been around for hundreds of years and is flooded with regulation. Before you jump head first into cryptocurrency trading, check out these top 3 must know’s!
The high price swings you see in cryptocurrency trading is a reflection of how many unknowns still exist in this space. The financial industry hasn’t exactly agreed on how to categorize cryptocurrency. For example, is it actually a currency like the dollar? Or is it a commodity like gold? Then there’s the question from the IRS. They want to share in the high profits but they don’t have the systems in place to be taxing all the trades being made. Governments all over the world are navigating how they want to treat cryptocurrency trading. Some governments are pushing to disallow cryptocurrency trading and we are still waiting to see who will oversea this giant arena.
Making a ton of money in a short period of time is an itch that’s hard not to scratch. There’s a constant tug of war between joining in the fun or playing it safe on the sidelines. Did you know there are thousands of cryptocurrencies available? More are popping up every day. Which is reminiscent of the stock market dotcom crash in the late 90’s. The internet became a thing. The world went nuts and start up companies were bursting onto the scene. Investors were buying before looking to join in the easy profits. When these newly formed companies ran out of their initial cash, they went bust. This spurred market volatility then burst goes the bubble. These tech companies had no record of success. Their stock prices rose from excessive speculation. Sound familiar? If you still want to participate in the fun, only invest what you can afford to lose.
If you’re ready to hit ‘buy’ and start trading cryptocurrency, do your homework just like you would with a stock. There’s a million different ways to research what’s out there but here are some starting point.
1- Find out how easy it is to purchase the specific cryptocurrency and where can you purchase it? Is this a friendly platform that’s familiar to a wide variety of people? This is important because you are evaluating the accessibility of the cryptocurrency you are considering.
2- Find out what the legitimate use is for this specific cryptocurrency. For example, what problem are they solving that’s unique to them. Cryptocurrency can help transfer money between countries with different currencies, but what else? What is their value add?
3- Find out how frequently and in what quantity is this cryptocurrency being traded. If a few heavy hitters own this specific cryptocurrency, then as an investor you’re at their mercy.
Your process for having a profitable investment strategy should be repeatable otherwise it’s not sustainable. I do believe that cryptocurrencies are here to stay. Which cryptocurrency will be here in 5 years? That part I can’t confidently tell you. Think about it like this. AOL was a big time player during the dotcom boom. I remember the first time I messaged anyone on a computer it was through AOL Messenger. Back then, it may have seemed like AOL was untouchable but innovation continues to happen. Your investments need to be flexible and poised for growth. Cryptocurrency trading has opened up a whole new arena in the investment world but for now, I would only invest what you’re willing to lose.