Investing in cryptocurrency is a relatively new option that any curious or careful investor can consider when diversifying their assets. Before you start investing in cryptocurrency, consider these 7 things to avoid when investing. This way, you can make the smartest and wisest cryptocurrency investment decisions for your needs.
Investing in Cryptocurrency: 6 Things to Avoid
1. Issues of Fraud and Security
The platform by which the cryptocurrency market revolves around includes digital technology. Every transaction, from mining to purchasing and selling of a digital currency, also takes place online.
This, according to regulators, can pose a threat since some of these exchanges are fake. For an investor to have the assurance his funds are well protected, it is best to do your homework by creating a potential list of exchanges you are interested in. Then, verify if they are all legitimate and if each one has implemented adequate security in all its transactions.
*Note: A great thing to look for when dealing with a new company is to see if they have voluntarily submitted their company to government certifications.
2. ICOs Pose More Complexities Than Stock IPOs
And initial coin offering (ICO) is crowdfunding in the market of cryptocurrency. It works by getting a portion of the crowdfunded cryptocurrency and sells them as “tokens” to investors. You have the option to then exchange this with other cryptocurrencies or for legal tender. The tokens will only become functional once the project launches. This will take place upon meeting the goal of funding the ICO.
An initial public offering, or IPO, occurs when a private business accepts outside investors. Owners sell a portion of their shares or issue new shares to raise funds needed for expansion. They do this while having these shares listed down on a stock exchange or any market that’s over-the-counter.
ICO vs. IPO
What makes ICOs more of a challenging investment than IPOs are the participants involved. For ICOs, everyone can participate. While with IPOs, investors include those who are institutional and make the shares available to those whose income meets specific thresholds. With IPOs’ high standards, investors can rely on safeguards. This includes accessing a company’s profile and financial status before buying shares. With ICOs, it usually isn’t nearly as easy for an investor to verify the track record of a company.
3. Avoid High Fees
You may be able to avoid high fees by buying and selling Bitcoin through a cryptocurrency wallet. You can download this on your smartphone. The cryptocurrency wallet still has transaction fees, but often not as high as that of exchanges. Exchanges require transaction fees that are a percentage of the total amount of the transaction. The transaction fees vary depending on the exchange.
4. Buying Derivatives May Not Be a Suitable Option
Crypto derivative trading may not be the way to go when looking for your next crypto investment. Some believe these derivatives, including Bitcoin futures, have the potential for greater losses. Of course, it’s impossible to predict the cryptocurrency market, though smart investing practices can save you from making some detrimental investments.
5. You May Not Want To Cash It All In
Diversifying your portfolio can be your hedge in making sure you won’t lose everything. Cryptocurrency is known for its volatile nature. Its unpredictability when it comes to returns can either provide you a huge amount of profit or losses.
6. Don’t Sell When Emotionally Hyped
Tempting as they can be, it still is best to remain level-headed as much as you can when trading digital currency. By constantly re-evaluating your position, you get to assess the best strategy to make. Also, keep in mind the golden rule when it comes to trading cryptocurrencies: “Don’t invest more than what you can lose.”
Remember, when investing, there is no hard and fast rules. Always do your own research, and always think twice. No one can tell you what to do with your money, so make sure to take the time necessary to make the best choices for your specific situation.
Do you have other suggestions on things to avoid when investing in cryptocurrency? Please share them in the comments section below.