A few weeks ago, the Crown Prince of Liechtenstein, a German-speaking microstate in Central Europe, announced that he was planning to invest in cryptocurrencies to restore his family wealth. He also added that blockchain could even make their state: “more efficient the way it is administered.”
This is just one of numerous examples of what we’ve been reading recently. Namely, the internet is filled to the brim with the news informing us about the people who got rich by investing in bitcoin or those that are planning to do so in the near future. Not to mention thousands of articles explaining how to invest in cryptocurrencies and why to do so.
The point is- cryptocurrencies have shaken the world of finances once again. Their value is constantly rising and it shows no signs of slowing down.
But, can investing in cryptocurrencies make you rich even if you’re not the royal family, surrounded by numerous financial advisors? Let’s find out!
Cryptocurrencies are Gaining Momentum as a Lucrative Form of Investment…
With an astonishing rise in popularity of Ethereum, cryptocurrencies are once again on the list of the most lucrative investment opportunities. The prices of graphics cards have risen, with the promise that those who invest in powerful computers and know how to mine can make a fortune.
In his recent Twitter status, he emphasized that “Cryptocurrency represents the largest transfer of wealth our generation has ever seen.” And, he is not the only one who understands that investing in them may be one of the fastest ways for young people to attain wealth.
Namely, studies tell us that 30% of Millennials would rather invest $1,000 in bitcoin than in government bonds or stocks. However, the market is constantly getting wider. The same report also claims that people aged 65 and up are also getting more familiar and interested in this form of investment.
… but, Investing in Them Comes at a Price
Investing in cryptocurrencies may be extremely risky if you don’t prepare yourself on time. Here are some of the major problems you may face when investing in cryptocurrency:
First, cryptocurrencies are a relatively new concept and people are barely familiar with them. By investing money in something they don’t understand, they are more likely to lose their money.
Second, the number of coins is limited and the demand for them is rising by each passing day. Given this fact, it’s not surprising at all that, when compared to investing in forex or the stock market, the cryptocurrency market is extremely volatile. Even though its volatility is expected to plummet over time, currently, the price of bitcoin is bouncing on a daily basis. This means making good money fast, but also losing it quickly.
Third, one of the major problem people investing in cryptocurrencies face is the rise of unlawful activities. Namely, as a digital technology, cryptocurrencies may become subject to cybersecurity breaches. We’ve already had the opportunity to see that, with numerous ICOs getting compromised, costing investors millions of dollars.
Still, in a comprehensive guide, called “Bitcoin White Paper Made Simple,” The Blockchain Review has pointed out that “If a breach of the Bitcoin network occurs, your address and transaction information cannot be easily linked to your identity.”
Like I’ve already mentioned, the world of cryptocurrencies is pretty volatile and, to survive in it, you need to have a solid strategy.
- Allocate your assets smart. When starting out, you need to set your stop-loss level clearly and build your coin portfolio wisely. Think of it as managing your budget. Logically, you should invest more in the least volatile coins, and less in the least stable and yet potentially higher returning cryptocurrencies. To get the most of your strategy, you should keep track of the current market signals and adapt your strategy according to them on a daily basis.
- Don’t get hyped. To get the most of investing in trading currencies, you need to resist FOMO, the fear of missing out. Namely, investors most commonly feel urged to buy a new coin when the price jumps and, as it loses value, they end up with a bag of worms.
- Avoid overtrading. Some people sell their coins instantly if they see a small price drop. Remember that, in most cases, this is just a temporary occurrence, encouraging smaller currency holders to sell their coins before the prices jump.
- Beware of bots. The cryptocurrency market is prone to numerous speculations and one of them is bots. They are used to artificially inflate the coin prices. That’s exactly how Neo, a Chinese alternative to Ethereum, went from $34 to $3.74 in a few seconds. However, to spot a bot, you need to carefully observe the market trading signals and try to find the abnormal trading patterns, such as price momentum and volume.
To Wrap It Up
As you can see from these examples, investing in cryptocurrencies may be profitable, but only if it’s done properly. Whether you’re investing in Bitcoin, Ethereum or some other altcoin, you need to do your research and build a solid plan.