Cryptocurrencies have grown in popularity over the last couple of years – 2017 was particularly significant in the annals of cryptocurrencies. During the bull run of 2017, cryptocurrency investors didn’t have to do any fundamental or technical analysis.
All you had to buy was buy the coins and watch its value skyrocket. Bitcoin delivered about 1300% gains and Ethereum was up my almost 30,000%.
2018 however has turned out to be an unprofitable year for cryptocurrency investors. The market capitalization of the entire cryptocurrency market is down more than 50% and some individual cryptocurrencies have lost as much as 80% of their trading price.
Interestingly, many cryptocurrency enthusiasts are starting to promote the narrative that purchasing cryptocurrency now might be a smart way to buy these coins at a discount.
If you are already being tempted to add cryptocurrencies to your investment portfolio, here are five important things to note before you get started.
- There’s an element of risk to the potential reward
Cryptocurrencies are still mostly in the realm of speculative investments and such investments are inherently high-risk, high-reward offers. As much as enthusiasts are quick to note that cryptocurrency is the future of money (and with valid reasons), it might be reckless to put all your wealth in cryptocurrencies.
The general rule of the thumb that you should only invest what you can afford to lose holds true. If you leave the listed cryptocurrencies to buy into an ICO, you should understand that you are technically buying into a startup. Startups typically fail and elements of hype aside, many ICOs will fail if their business can’t stand the test of time.
- Cryptocurrencies are not yet a zero-sum game
The good thing about buying cryptocurrencies now is that the market is still young and there’s incredible opportunity to align yourself for success. More importantly, cryptocurrencies are not yet a zero-sum game, the success of one coin doesn’t necessarily mean that other coins will fail.
Hence, diversification in the cryptocurrency industry will most likely increase your chances of building a profitable portfolio rather than reduce your odds. Most cryptocurrency newbies tend to buy Bitcoin because it is the most popular coin in the market; however, if the cryptocurrency market will grow to its true potential, the value will most likely be driven by a handful of coins and not a single coin.
- The exchange you choose can make/mar you
Cryptocurrency trading and investing happen through exchanges and the exchange that you choose can make/mar your crypto investing career. The leading crypto exchanges hold and facilitate hundreds of millions of dollars’ worth of cryptocurrency..
Hence, hackers tend to devote more energy to hacking an exchange that to hacking the accounts of individual cryptocurrency users. Different reviews in which exchanges such as Binance and Coinbase are compared show that they offer users a great deal of security by using the best in-class protection measures.
Beyond security, you should also pay attention to the transaction fees and processing times especially if you want to be involved with cryptocurrencies as a day trader. The exchange determines your exposure level based on the number coins that are available for purchase or trading on the exchange.
- You’ll need to invest time in reading, studying, and analyzing the market
A quick search on twitter or LinkedIn will show that that thousands of people now brand themselves as cryptocurrency analysts, experts, gurus, and strategists.
However, the industry is still too young for anybody to lay claim to be an expert – in fact, nobody can say with any degree of certainty that they understand why the price of cryptocurrencies go and down.
In essence, you’ll need to devote time and energy to understanding how the market works, identifying the trends that move the market, and avoid the FOMO and FUD hysteria when the rest of the market is losing its head.
If you can’t analyze the market yourself, you’ll need to pay someone to analyze the market for you; which in turn leads to reduced trading profits or worse still, huge trading losses if their analysis is wrong.