Whether it's the oldest and the biggest — Bitcoin — or the one that started as a meme — Dogecoin — cryptocurrencies have taken the market by storm this year. And even though the price of Bitcoin slumped recently, after the Chinese government's crackdown on banks' use of digital currency, there are no reasons to write it off straight away. Yes, critics have said that cryptocurrencies have no intrinsic value. Some of them have even drawn a parallel between the Netherlands Tulip Garden mania and the rush for Bitcoin, but the endorsement by the likes of Elon Musk, Snoop Dog, and others has kept it going.
There's no denying that many new investors are also interested in investing their money in cryptocurrency, but are a bit reluctant because of their lack of understanding. Here are a few things you have got to keep in mind while planning to invest in any cryptocurrency:
Volatility: How much risk are you willing to take? Critics for the longest time have highlighted how volatile cryptocurrencies are. It's much more volatile than any other investment and therefore you must understand it carries more risk as well. Not to forget there's always this risk that your country may declare cryptocurrencies illegal any moment. The recent decision by the Chinese government is just one such example. Take the risk, but be calculative and attentive to what's happening around you. Invest only as much as you can afford to.
Bitcoin is not the start and the end of it: Yes, it's the most popular, the oldest and the biggest, but Bitcoin is certainly not the only cryptocurrency in the market now. Just a reminder that Bitcoin happens to be the most expensive currency as well and therefore you must look at other options such as Ethereum, Litecoin, and Ripple. So, yes, look for the most affordable and the least volatile crypto while you plan to invest. It won't be all that bad to keep an eye on people who regularly talk about digital currency and possess the ability to influence the prices. Elon Musk is one such person.
Read whitepapers: It may not be the most exciting thing to read, but any company's whitepaper is an insight into its functioning and helps an investor understand if it's worth investing money into. Not only will you get to know more about the coin itself but also the utility it brings to the market. A poorly written whitepaper is an indication that if a company can't explain the utility of its coin, is it even wise to invest in it? The ones who can't explain in all likelihood can't protect or preserve your investment.
Look for signs of a scam: The Federal Trade Commission (FTC), a US consumer protection body, earlier this week reported that scammers impersonating Elon Musk stole over $2 million (roughly Rs. 14.63 crore) in cryptocurrency since October last year. The FTC's new data also shows that nearly 7,000 people have been defrauded since October 2020, reporting losses in bogus cryptocurrency investments, adding up to over $80 million (roughly Rs. 585.43 crore). These scams, it says, can happen in many ways and they are “full of fake promises and fake guarantees”. As potential investors, you should be extremely careful of these elements and websites that galore on the internet.
Time: Generally, there's no rule on when to invest, but it's better not to invest when something is at the peak of a bubble. It's equally important not to invest when it is crashing. The best time, if you were looking for one, would be when the prices have stabilised for a while on the low level. Given the volatility that cryptocurrencies epitomise, time is of utmost importance when it comes to investing money into them.