How to start
The most common question among beginners is “Is it worth investing in cryptocurrencies and bitcoins?”. It can also be accompanied by questions: “What are cryptocurrencies?”, “Can cryptocurrencies be considered a serious investment, or is it just a form of speculation?”
Before you answer “yes” or “no” to the first question, you first need to deal with the last two, which will lead you to a decision that is right for you.
What is cryptocurrency
Cryptocurrency is a form of decentralized digital currency that can be used as a legitimate means of payment – for example, to pay off debts or to buy goods and services. You can think of cryptocurrencies as a cross between a regular fiat currency (like the US dollar) and an asset like Amazon shares.
There are already more than 2,000 different cryptocurrencies, among which the very first and most famous is Bitcoin.
Can cryptocurrencies be considered a serious investment? Or is it just pure speculation
Yes, cryptocurrencies can be a serious investment. However, there are some key differences between investing in cryptocurrencies and conventional investments. Here is some of them:
- Cryptocurrencies are fully digital, so they do not exist in the form of paper money;
- Cryptocurrency exchanges are not insured at the state level, for example, as they do with banks. If someone breaks into your account or your exchange closes, the government is not obligated to refund your lost funds;
- Cryptocurrencies are decentralized. This means that they are not tied to any country or government body, which allows cryptocurrency owners to make transactions without government supervision. On the one hand, this is an advantage, but on the other hand, you do not have the opportunity to cancel unauthorized transactions;
- The history of volatility (instability) of cryptocurrency prices is not that big, and therefore traditional technical analysis may not work until the market itself has “matured”;
- If you consider cryptocurrencies as an asset, then you are betting on the blockchain technology on which these digital currencies are built. However, the fundamental analysis for cryptocurrencies will be very different from the fundamental analysis of traditional assets.
About the myths of investing in cryptocurrencies
Now one may ask, can traditional investors consider adding cryptocurrencies to their investment portfolios? The answer will depend on the person you are asking. Here are some myths about investing in cryptocurrencies:
1. ‘Warren Buffett believes that bitcoin is a fraud, and therefore I should not invest in it.’
More recently, Warren Buffett compared bitcoin with a button on his jacket, saying that the value of bitcoin is actually not higher.
However, one can also talk about gold and a $ 100 bill, which people use to trade. Still, Buffett is investing in gold, right?
On the other hand, Warren Buffett encourages people to invest only in those things that they know and understand well. He himself still uses a flip phone. He probably does not understand how cryptocurrencies can be used for the benefit of the “non-banking” population of the world, which, using smartphones, could do perfectly well without banks.
Even JP Morgan CEO Jamie Dimon, who called Bitcoin “fraud” back in 2017, did not refuse to introduce digital currency into his company. And Buffett did not say anything about the other 2000 altcoins, against which, perhaps, he does not mind!
It seems that now everyone is inclined to think that cryptocurrencies (not only Bitcoin) are the future. Perhaps you should invest in them, although for this you need to understand them well and be able to choose the right time for buying and selling coins.
2. “I should not invest in cryptocurrencies because the government or the central bank does not support them.”
The whole point of cryptocurrencies is that these are assets not supported by the government.
Imagine you have a business, money in a bank and a lot of property. And suddenly the government was overthrown, and the country begins to live according to completely different rules and laws. Most likely, the new government will freeze your bank accounts, take away property. These things will no longer belong to you, because they are easy to grab and say that they are no longer yours.
What past wealth can you pass on to children? Almost nothing. But if at least part of your money was then in bitcoins, which no government can reach, then another thing!
For example, US citizens are in some way lagging behind in the adoption of crypto compared to other countries. The reason is a higher level of confidence in the government, as a result of which they are not afraid that the government may freeze their assets tomorrow. This is why they do not appreciate the opportunities offered by cryptocurrencies.
Why invest in cryptocurrency
Now that we have dispelled some of the basic myths about investing in cryptocurrencies, let’s look at some of the reasons why you JUST NEED to invest in cryptocurrencies!
1. Haters turn into active supporters. As we already said, JP Morgan CEO Jamie Dimon called bitcoin fraud back in 2017. However, now his company is creating its own cryptocurrency.
Even the US government is beginning to realize that it will not be able to resist the global recognition of cryptocurrencies and is currently actively looking for ways to regulate the crypto industry.
2. Cryptocurrencies are recognized more and more. Every day we hear about new trading companies that accept cryptocurrencies such as bitcoin as payment. Here are some examples:
- Mastercard creates a debit card with bitcoins;
- Fidelity is committed to offering crypto trading;
- The United States aims to optimally regulate the industry;
- More and more people are learning about cryptocurrencies through the media and the Internet;
- More and more women in the world are involved in the crypto industry. This is the half of the Earth’s population who likes to spend money, and now cryptocurrencies.
If you want to invest in cryptocurrencies, here are a few things to keep in mind:
- Find out how risk tolerant you are. The first thing you need to do is figure out how much you want to invest. Cryptocurrencies are unsustainable investments. This is still a relatively new market in which assets can make huge fluctuations in a day. Depending on their risk tolerance, the amount of investment for different people may vary. Perhaps cryptocurrencies can make up 15% of the total amount of your investment portfolio.
- Learn. Before you start investing / taking risks, you should have a good understanding of the world of cryptocurrencies, as well as a good understanding of what your every step means and what it is aimed at. You need just general knowledge about cryptocurrencies, markets and trading, and not what marketers push certain coins.
- Choose a cryptocurrency exchange that you can trust. Examine the information on cryptocurrency exchanges, and choose the one that is really worth trusting. This is a kind of research work, which should lead you to certain conclusions about these platforms. It can be Coinbase, Binance, Kraken and others. When it comes to exchanges, you should also resort to some diversification, because there are many cases of hacks, and even there are cases when exchange owners die by taking away passwords from wallets.
- Create a diversified portfolio. Next, you should decide which cryptocurrency you will invest in. Although Bitcoin is one of the most famous digital assets, there are more than 2,000 cryptocurrencies, also known as altcoins, which are also worth exploring. The cryptocurrency market is similar to the dot-com market. In the long run, some of these cryptocurrencies will succeed, while others may disappear. Perhaps, along with the “dying” coin, you will find a couple of those tokens in your hands that will make you significantly rich in the long run.