You should understand about crypto as an Investor to get the maximum benefits out of a crypto deal.
Digital currencies have gained familiarity since the early 1970s, pushing the limits of security, privacy, and ease of use to the next level. But in the past decade, people’s interest has transmuted towards new spectra of digitized currency, i.e. “Cryptocurrency”, a decentralized digital currency or an asset other than a fiat currency, which acts as a virtual circulating medium for financial transactions.
No doubt, investors have found cryptocurrencies to be intriguing, after the 3,600% rise in the total market share of all digital currencies embarking USD 800 Billion in capitalization with Bitcoin’s bull rally touching $19,000 highest of all time in 2018. However, soon the market correction brought down all the hype and high rewards associated with it. So one ought to be cautious and careful while investing in such virtual currencies.
“If Bitcoin were a country, it would be the 53rd wealthiest nation in the world.”
A New asset class ?
As a new digitized investor, a propensity towards hype, attractive rewards, and ROI are high but those playing at the forefront know the amount of risk and volatility involved in trading in cryptocurrencies. It has become easier for new entrants to invest in the crypto assets as it was pre-2018. Cryptocurrencies have been in talks since its launch, from hearing stories of people becoming overnight millionaires to people losing the whole of their portfolio for making quick money.
Most of you while taking your first steps towards the investment, you’ve probably hovered yourself asking questions like how to get started investing, is it too early or too late to join the race, what you need to understand before entering the virtual space and what are the best ways to invest in the cryptocurrencies?
While you’ve been stuck in the pool of asking yourself, here’s a quick fact – According to a Securities platform report, it is said that “More than 70% of crypto-asset holders are planning to buy more stake in the coming months.” Therefore, you should expect more like you on this journey of a successful investment.
With this great tip and quick fact, in this article, we will enlighten you with the top 20 things you should understand about cryptocurrency as an investor and before making any investment to help reach you at your desired point.
So if you want profits out of this every second growing market of crypto then you should understand about crypto as an Investor and not as a normal person.
1- KYG: Know Your Goal as a crypto investor
Perhaps, one of the most basic fundamental surrounding any investment is to ask yourself “What are your Goals”, why are you doing it? Is it just because the market is trendy or just for the sake of following the crypto-craze of what others are doing? There are many investment drivers available in the market, many of which offer stable returns, less risk, and volatility as compared to cryptocurrencies or digital assets with high risks and unpredictability. You need to find that ‘one’ compelling reason which will drive you towards your goal of crypto investment. Investors opt for diversified investments as per their goal and exploring the crypto world may make more sense for some as compared to others.
2- DYOR: Do Your Own Research
If you are planning to invest in cryptocurrencies, especially for those who are new entrants to this digital platform, it is advised one should “Develop a Feel for the Industry”, a sense for how the congregation works around in virtual space, what cryptocurrency has to offer you, market and technical complexities around it. It is advised to spend effective time studying, doing your own research, and understanding the dynamics, ins and outs of the crypto industry before making any investment. The digital space is moving at a very fast pace, what could’ve been true today might be different tomorrow. Therefore, what we call in crypto slang as DYOR.
3- “Never put all your eggs in one basket and in something you don’t understand”
A quote, much propounded by all experts in the investment space and often quoted by ‘Warren Buffet’ – a gem in the field, that without understanding the dynamics of what you’re getting into is like risking all your hard-earned money to be lost in one go. Due to the unpredictable nature and high volatility involved in cryptocurrency Buffet never invested in cryptocurrencies because it is out of his understanding of market dynamics. There’s much more involved in digital tokens than what it seems like. New investors put all their money in one digital asset without knowing its technicality and know-how thus risking to lose all at once.
4- Total Market Capitalization (Market Cap)
As of 2020, there are approximately 5,400 cryptocurrencies with a total market capitalization of $224 Billion listed all around the world’s 21,000 exchanges. Market Cap here reflects the size of an organization and presents with an insight into the level of risk an investment carries. Most exchanges list only the largest and top 100 cryptocurrencies by market capitalization due to the fact new entrants are most familiar with it. It is vital for a crypto investor to review the market cap before making any investment since currencies with high market cap and supply tend to be less volatile to market manipulation as compared to small currencies.
5- Trading Volume
Trading volume represents buying and selling of any asset in the 24-hour cycle. As a crypto investor, one should be vigilant enough to take a peek at the 24-hr trading volume of cryptocurrency before heading to making any investments. This data changes every hour and can viewed by investors on any exchange data sites like coinmarketcap or cryptocompare to name a few. High trading volume represents it is easier to buy/sell the crypto asset as compared to low trading volume due to low liquidity and a hint towards a dead investment.
6- Safety Wallets
Cryptocurrencies can be stored both via offline or online wallet. As a crypto investor one needs to identify as per convenience which wallet to choose to store cryptocurrencies. Both wallets have different features and use, an online wallet is the most desirable option for any new investor due to its ease of access and availability, however, there are more chances of it being hacked as compared to offline wallets which are more secure, less prone to such risks and an ideal option for one who plans to save for longer period.
7- Careful around Exchanges
One of the most common mistake a new investor make is “misunderstanding trading platforms for wallets”, it seems convenient for many to store everything online due to anytime availability on exchanges and when you store cryptocurrencies on such platforms then you don’t own your keys. (Keys, a secure and unique alpha-numeric cryptographic algorithm for cryptocurrency). This can later become explosive when exchanges are hacked or closed down, one could lose everything they own.
8- Secured E-mails and Authentication
As a new entrant, one should create a unique account that is safe, secured, and less prone to data getting breached online. It is advised that investors while dealing on crypto platforms and exchanges should not use a regular email address for trading and flow of information rather creating an alternative address with two-factor authentication enabled to reduce the chances of getting hacked.
9- Build a crypto-investment strategy
One should avoid a bad trade or no investment strategy since these are roads unturned. One could never come back from losses incurred if the heedless and fast approach to earn big is played. Crypto trading is a zero-sum game which means there is a winner and also a loser, thus following a rock-solid strategy and technical analysis is a go-to for every investor.
10- Tracking of Funds on Time
As a new investor, it is quite difficult to track your funds every time and due to complexities surrounding cryptocurrencies, it makes it difficult for an investor to keep a tab on every investment and economics. It is recommended to use a proper dedicated tool to track your crypto-related investments like Coin Tracking.
11- Government Intervention and Regulations
Cryptocurrencies unlike fiat currency are subject to government interventions and regulations. They are not backed and insured by Govt. entities and banking institutions, which means it does not hold the same level of protection as a bank holds for your money. In any uncertainty, the government may not be able to help and protect your funds available in the form of any digitized asset.
12- Constant Valuation
Cryptocurrencies are subject to high uncertainty and volatility which makes it price/value to change constantly, A digital currency that is worth thousands of dollars today might not be worth a hundred in the next hour. There is no guarantee the value will go up if it goes down.
13- Beware of Scams
In the crypto world, a new entrant should understand that no one can guarantee you’ll make money, anyone claims to give you a profit is likely to be a scammer. Don’t invest if you can’t afford to lose more.
14- Legal Protections Surrounding Cryptocurrency
Investor does not hold any legal protection while making payments or investments with cryptocurrency as compared with banks which give legal right to claim for a dispute if something goes wrong.
15- No Refunds
A Crypto investor should keep in mind that cryptocurrency payments are non-reversible which means no refunds can be made until and unless a seller wants to. Due to its peer to peer sharing and non-traceable feature, whereabouts of your payment is unknown.
16- Crypto Mining
A very popular term in the crypto world – Crypto Mining, as the name suggests it helps in mining and adding new transactions to Blockchain a ledger platform and also releasing new currency. Many investors have switched from full time investing to full-time mining using software and hardware tools to generate and mine new currency.
17- Technical Analysis
Many new investors fear to learn the technical know-how of the market thus restricting themselves to earn more from their investments. Technical analysis helps an investor by knowing the psychology of the market, how it behaves and performs. It helps to avoid bad investment or bull buying.
18- Switch to Alt-Coins
Many investors think when investing in cryptocurrency as investing in Bitcoin itself. There are approximately 5,200 cryptocurrencies other than Bitcoin which are listed in the exchanges and carry promising investments and returns. Investors need to switch to alternatives or in crypto slang – Alt Coins, to diversify their investments and portfolio and avoid risking putting all money in one basket.
19- Cryptocurrency can Vanish
Since cryptocurrencies are digital tokens available in virtual space, it’s possible to be wiped out of existence due to high volatility and uncertainty in the market. In 2017, a 300% rise was seen in the value of Bitcoin and aftermarket valuation in 2018, it falls by over 500% thus wiping out billions of dollars of market value in seconds.
20- Learn Crypto Slangs
A new investor should know and learn the crypto slangs and lingo to better understand the digital platform. Crypto Slangs like FOMO – Fear of Missing Out, FUD – Fear, Uncertainty and Disinformation, Stop Losses, etc. to name a few.
Investing in cryptocurrency is hyped by marketers, however, a certain plan and strategy is key to a responsible investor and trader who does his own research before making a decision. Hopefully, these 20 things will help you as a new entrant towards the road of investing in the cryptocurrency world.