If you bought Bitcoin a few years ago, you could have a small fortune now. So it would make sense to predict that the value of cryptocurrencies will significantly increase a few years from now. If you’ve been keeping up with the cryptocurrency space, it is a popular space these days. People around the world are making thousands of dollars from this investment.
If you are one of those people who saw the potential of Bitcoin a few years back, you may have probably made a lot of money by now. However, the large returns that come with cryptocurrencies do not come without its own set of risks. Cryptocurrencies are known to be very risky and highly volatile compared to traditional investments.
Before you invest in cryptocurrency, you should engage in independent research, because it seems like everyone has their own opinions about cryptocurrencies. Making informed decisions is important to succeed in the cryptocurrency space. Here are six things that you must consider before you invest in these virtual currencies.
- You can rack in the cash
It is true that you can make a lot of money with cryptocurrencies. The industry offers up to thousands of percent worth of returns. That’s a lot of money. This is more money that you can make if you invest in traditional assets. In fact, the cryptocurrency space hasn’t been lacking stories of people becoming instant millionaires because of the Bitcoin boom.
- People will try to scam you
There is a lot of money being poured into the cryptocurrency space today. This makes it a highly attractive space for hackers and those who have bad intentions in mind. In fact, cryptocurrency is a fairly new industry. As it is still in its infancy stage, there are many questions that cryptocurrencies have yet to answer. Although it has solidified itself as an investment that can make money for people in the short term, there are still a lot of concerns about how sustainable this method of investing is.
As there are people who are experienced with cryptocurrencies, there are also equally as many people who are just jumping on the cryptocurrency trend and wanting to get a slice of the cake. This means that many people who don’t understand cryptocurrencies are eager to trade cryptocurrencies. As a result, there is an increasing number of ICOs that want to take away investors’ money. Therefore, before you participate in an ICO, make sure that you research who the developers are, what problems the coin intends to solve, and so on.
You should be searching for a cryptocurrency that is developed by someone who has extensive knowledge about cryptocurrency. Similar to start-ups, if the developers don’t have a solid foundation, the whole project can easily fall apart. You should try doing a LinkedIn search about the team, and you will find a lot of information about their previous experience.
- There is high liquidity in the market
Think about it this way. If you invest your money in traditional investments, most probably your money will be kept in a financial institution for years. However, this is not the case with cryptocurrencies. Any money that you bring to cryptocurrencies is fairly liquid. By using cryptocurrencies, the level of liquidity in the market is reasonable, meaning that you can cash in on your profits almost instantly. In addition, the market also runs around the clock.
- You are exposed to technical difficulties
When it comes to cryptocurrencies, one of the things that you have to keep in mind is that it is highly digital. Therefore, there is no physical representation of virtual currencies such as Bitcoin. This is only reflected by the increase or decrease in your cryptocurrency wallets or exchange. As a result, you are subjected to technical errors. If you are on a popular exchange, you may have some issues during peak periods.
There are times when exchanges can get very busy. Their network could get congested, and your deposit can get frozen. In fact, the Chinese government had freeze withdrawals before. Therefore, regulation is another aspect that you want to take into account. In addition, you have to consider finding a reputable exchange. If anything goes wrong, you would have a higher chance of getting a refund.
- You get the chance to invest in new technologies
There are a lot of things about cryptocurrency that you may not know about. All the information about the cryptocurrency can be found on their white paper. Typically, this is a document that is released before an ICO is launched that explains technicalities about the project and the technology that they are using. You should refer to this document before you invest in anything. It will also include information about their team members. Keep in mind that if there is not much information about the company, they’re probably a scam.
- You can lose everything because of hackers
One of the biggest disadvantages of owning cryptocurrencies is that you are exposed to security risks. Lately, we have been listening to a lot of stories about money being stolen from the exchanges. Hackers are growing more creative by the day, and even the most complicated security systems cannot stop them from stealing. Therefore, it is not recommended for you to keep your coins on an exchange. Always transfer them immediately to hot wallets or a cold wallet. It doesn’t take much of your time to transfer it. Therefore, always ensure the security of your crypto assets.
As cryptocurrencies are not insured, you have to take extra precautions when you are trading them. All in all, keep in mind that investing in cryptocurrencies is highly risky. The market is very volatile, and technologies are still in their infancy.