With all the buzz around blockchain, and it’s subsequent focus on cryptocurrencies, there is a marked interest in cryptocurrencies as a market for investment. And nothing illustrates it better than the remarkable rise of Bitcoin last year when it touched the $19,000 mark. While the value of Bitcoin has fallen quite a bit a year on, cryptocurrencies remain a big interest for both consumers and investors.
Expert investors will sing the same song when it comes to investment advice- understand the risks. And the risks associated with cryptocurrencies are quite unique. The regulations surrounding cryptocurrencies are not quite clear. There is an imminent danger that a country may simply ban cryptocurrencies, and that will cause the value to plummet overnight.
Cryptocurrencies do have the potential to offer a great return, but consumers must ensure they do their due diligence. To help them out, here is a five-step checklist that covers most bases:
Do the research when investing in cryptocurrency
Understand the risks that you’re taking when you buy cryptocurrencies. Understand that when you buy into an ICO, you are essentially buying into a startup. And many of them fail. Understand that cryptocurrency markets are largely unregulated, and what further risks that brings. Try to gauge whether the company is actually solving a problem, or is it simply a copycat.
Cryptocurrencies are a high-risk investment and should be treated as such. Diversify your portfolio, and do not invest more than 20% of your portfolio into cryptocurrencies.
When it comes to crypto, we’ve all heard those remarkable rags to riches stories. Those inspiring stories of returns as high as 1000% are what draw most people to cryptocurrencies. But that is a highly unrealistic investment goal, and a person’s investment strategy should not hinge on such high returns. Diversifying is crucial, and it is wise to stick to blue-chip stocks like Ether, Bitcoin, and LTC.
There are some genuine concerns around cryptocurrencies related to hacks and security. But these are mostly avoidable if one sticks to the tried and tested company/ platform to manage your investment. Research about the prevalent companies in your country, and choose on the reputable exchanges and wallets.
Track your losses and gains
Tracking your portfolio to see how it is doing is quite important. But at the same time, being paranoid and checking the value every few hours is also not healthy. Crypto is quite volatile, so obsessing over price changes in short periods of time is not a good idea.