7 Facts to Know Before Investing in Cryptocurrency

Not that long ago, the idea of investing in cryptocurrencies was hard to fathom. Fast forward to today and it's a whole different story. Around 97% of 60.000 respondents asked, consider cryptocurrencies a valuable way of earning an income.

What makes investing in cryptocurrencies appealing to most?

In this digital era, crypto advertisements seem to be everywhere. Speeches by billionaires who've made their fortune with crypto can be persuasive. Taking this into account, one wonders, is investing in crypto really that easy?

On the surface, the process itself doesn't seem complicated, but in reality, it can be risky and there are many factors to consider before jumping in.

7 facts to know before investing in cryptocurrencies

Various types of cryptocurrencies

When people first hear the term cryptocurrency, they immediately associate it with Bitcoin but aren't aware of the wide range the market has to offer. There are currently 21.844 cryptocurrencies in circulation. This alone tells you — you're up for a challenge. Even though most of these are based on a similar protocol as Bitcoin — the oldest and most famous cryptocurrency, each can provide different features. 

Before making investment decisions, it's important to understand that cryptocurrencies can be divided into two categories:

Coins. These operate on their own blockchain and can be used for payments as well. Bitcoin, along with altcoins such as Ethereum, Solana, Dogecoin, Cardano, Litecoin, etc. fit into this group.

Tokens. Unlike coins, tokens are easier to create, don't have their own blockchain, and often offer a variety of uses. Some of the tokens you can find on the market are: Shiba Inu, Tether, Binance USD, Wrapped Bitcoin, etc.

Source

The cryptocurrency market is extremely volatile

The volatility of the market can be both a blessing and a curse for investors. Usually, this is what keeps potential investors away. It's almost always considered to have a negative impact, mostly because it arouses uncertainty. However, in addition to causing sudden losses, it can also cause sudden gains, which means it doesn't necessarily have to be a bad thing. 

The question remains after all, why is the cryptocurrency market so volatile?

Acceptance. Yes, cryptos have gained popularity, but are still not accepted as traditional assets. Whenever a famous person makes assumptions about cryptocurrencies, price swings happen, which means the price of cryptocurrencies depends on many factors.

Supply and demand. It's only logical that the more people buy bitcoin, the more the price goes up. Increased demand and limited supply of coins result in a rise in prices. However, as more coins become available, many will want to buy them, but at the same time, many will want to sell them. This can cause the price to significantly drop.

Cryptocurrencies are decentralised. Unlike stocks, cryptocurrencies aren't controlled by a specific entity. One may say, volatility is in their nature. 

Start small — buy Dogecoin

The biggest mistake of novices is their greediness. Everyone rushes to buy Bitcoin, while the market offers endless opportunities. As successful as bitcoin is, I wouldn't recommend Bitcoin trading to beginners. Remember — always use money that you can afford to lose. Try focusing on not-so-high-priced cryptocurrencies and buy Dogecoin for a change. 

You might think, is this a worthy investment?

Yes! It'll probably not make you a millionaire right away, but even a £100 investment can bring you a satisfactory income.

Source

Beware of cryptocurrency frauds

The cryptocurrency hype has created opportunities for scammers. A youngster might say: ''I'm not that dense to fall for a scam', but if one does, it doesn't necessarily mean they're unintelligent. Older generations are normally not that tech-savvy and can easily fall victim to fraud.

Just recently, a group of scammers based in Lancashire were sentenced for conducting a cryptocurrency scheme worth over $24 million. 

It's important not to underestimate scammers, since they're professionals and highly skilled in what they're doing. Don't make the mistake of trusting the wrong person, it can cost you a lot. In case you've stumbled upon unrealistic promises about earnings that make your head spin — run away!

Timing is everything 

Regardless of the fact that the cryptocurrency market is open 24/7, guessing the right timing means a lot. Investors tend to buy when the prices are at their lowest and sell when the prices are at their highest. There are no rules with cryptocurrency investments, but this is great advice to follow, especially for beginners. 

The price of cryptocurrencies is hard to forecast

Even with the right strategy, cryptocurrency price predictions are unreliable. This is due to their volatile and dynamic nature. Even in-depth analysis might turn out to be wrong. That's why investors shouldn't rely fully on predictions, no matter how tempting they are. 

The problem lies in the fact that most of the predictions aren't supported by evidence and analytical support to back up these claims. Price fluctuations are common when it comes to cryptocurrencies. If you're up for a wild ride and aren't scared of the unknown, investing in cryptocurrencies can be a smart move.

Source

Do your own research

When it comes to cryptocurrency trading, knowledge is everything. It's not a smart decision to invest, without gathering useful information first.

Before you jump in, it's important to at least be familiar with the fundamentals of the cryptocurrency market and be able to explain it. Start with studying different types of cryptocurrencies and most importantly, educate yourself about blockchain technology.

Pros and cons of investing in cryptocurrency Pros

Fast and secure transfer. Cryptocurrencies have made the process of transferring money across borders a lot easier. You can rest assured that cryptocurrencies in your digital wallet are safe and can be transferred without any complications. Having said that, documentation isn't needed, no third parties are involved and most importantly, there's no need to pay extra transaction fees.

Cryptocurrencies can be easily bought. If you think that there are too many facts to consider before investing in cryptocurrencies, and it just looks too complicated, let me cheer you up, the process of buying them won't pose any problems for you. Any cryptocurrency can be bought with many currencies like the US dollar, the British pound sterling, or the European euro, Moreover, cryptocurrencies can be converted between each other. 

Possibility for high returns. Yes, investing in cryptocurrencies has its own risks, but let's not dispute the fact that high returns may happen in a short amount of time. This recently happened with Shiba Inu, soaring more than 15% overnight. That's what makes this process even more exciting. 

Can help with inflation. Since cryptocurrencies are decentralised, they're not tied to a state's economy, which means their price is not affected by the economy itself. 

Cons

Not good for long-term investments. The trend is relatively new, thus the future of cryptocurrencies is unpredictable. That's exactly why, when it comes to cryptocurrencies, investors usually prefer day trading. This is yet another reason why cryptocurrencies aren't for people with low-risk tolerance.

Can be used to perform illegal activities. Since cryptocurrency transactions are secure and tracking down the owner is almost impossible, money laundering can be easily conducted. 

High-risk investment. With the constant price swings, you can never know what's going to happen. In case a price suddenly drops, your investment can be at risk, but not all is lost. Even if that happened, it doesn't mean the price movement will continue at the same pace. 

Source

What does the future hold for cryptocurrencies?

The cryptocurrency market suffered a huge loss in value in 2022. Undoubtedly, it was a terrible year for cryptocurrencies. However, this doesn't mean their future is doomed. Many believe that 2023 will be successful and cryptocurrencies are on the road to recovering. 

Despite the crash, cryptocurrencies seem to be a rising trend, but are they temporary or here to stay? 

It's hard to tell really. Since 2009, when Bitcoin came into existence, this journey has been nothing, but a while ride. El Salvador accepted Bitcoin as the national currency, but on the other hand, democrats and republicans think it needs stronger regulations. 

All facts considered, cryptocurrencies aren't going anywhere in the near future. They're already changing the world as we know it and many believe that cryptocurrencies are the future of finance. 

If you've recently become interested in this topic, take your time before taking a step forward. Investing in cryptocurrencies can really pay off and result in high returns, but time and effort are needed in order to understand its complexity.

My advice to you is to take baby steps and don't let the fear of missing out influence your ability to think rationally.