4 Important Facts to Remember When Investing in Cryptocurrencies

by Andrew McGuinness     Jul 16, 2019

It would be an incredible understatement to say that the cryptocurrency world has merely “taken off” over 2017. With the largest cryptocurrency—Bitcoin—experiencing 24,000% in growth over the last several years, and with the number of digital currencies holding a market cap of over $200 billion now, more and more investors are finding it likely to experience their next investment in a cryptocurrency.

And there is no reason to believe that it won’t continue to grow. Blockchain technology is the latest radical innovation in technology, and many believe that its significance will rival that of the introduction of the Internet. There are many opportunities for investors to make profits from the cryptocurrency world, even if they begin investing in 2018.

But remember: there are certain things you need to keep in mind when investing in cryptocurrencies, which are unlike stocks and other traditional investments in many ways. Here are 4 important facts to remember when investing in cryptocurrencies.

1) The Impact of Public Perceptions

Traditional investors may be accustomed to stocks, which can usually be relied upon to stay consistent despite the daily news. However, Bitcoin and other digital currencies are highly susceptible to the day-to-day news revolving around digital currencies. This is due to two things: the decentralized nature of Bitcoin and digital currencies means its value relies entirely on public perception and market trends, and secondly, the world is still shaping itself around the introduction of cryptocurrencies.

New taxes, regulations, and bans are announced at least once a week, meaning the price is always in motion, with buyers and sellers constantly wary of missing out.

2) Price Swings Happen All the Time

As we discussed above, it’s important to note that digital currencies aren’t like stocks: “fast growth” in the stock market is considered slow growth in the crypto world, with prices fluctuating at a rate that would make most stock investors duck for cover. Large swings of 25-50% are common and happen at least once a month, and this is largely due to the decentralized and unregulated nature of cryptocurrencies, which rely entirely on the investors that pump it.

However, there is a light at the end of the tunnel: it has been observed that these market fluctuations tend to decrease in range as time goes on and as the currency matures. This is because market perception over the coin stabilizes over time.

3) It Might Be A Bubble

While many crypto enthusiasts are unlikely to admit it, we can all agree that there is a possibility that Bitcoin and other currencies are simply experiencing a bubble. After all, there is no intrinsic value that acts as the foundation behind Bitcoin, and the world could eventually decide that there is no functional space for cryptocurrencies. If this were to happen, the value of cryptocurrencies would tank immediately, causing millions of investors to lose their investments if they don’t sell on time.

It is ideal that you only invest in cryptocurrencies if you truly believe in the technology—this will give you the serenity to live through the bearish months, since you are convinced that it will inevitably rise.

4) Security

With a decentralized and unregulated market, one important thing to remember is the added security that is solely on the responsibility of the trader. Cryptocurrency exchanges are known for experiencing hacks, with the largest hacking happening to Mt. Gox back in 2013. There are ways you can protect your coins, the safest being with a Ledger Nano, or a hardware wallet that allows you to keep your coins on a localized device unconnected to the Internet.

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