The Basics of Investing in Crypto

Even though it has been on the market for over a decade, cryptocurrency still feels like a new concept. So little is understood of it. It involves a lot of new technology that is hard to describe to any new investors, or even seasoned ones.

Because cryptocurrency is so new, people are left feeling confused or even being scammed when they try to dip their toe into it. There is a lot to navigate and a lot to be aware of to ensure that you don’t get burned. More than understanding the data, you need to understand that it is its own currency, and the practical ins and outs of what that means.

And then there is determining what to invest in. That is another element that will need good research to avoid making a mistake. Differentiating who knows what they are talking about form the influencers looking to back a funny meme will be the difference between you saving for retirement and seeing all your money drain out your e-wallet.

If you are thinking of getting involved in cryptocurrency investment, you might want to read our guide first. In it we discuss the right research required before you can safely make an investment.

Understanding crypto

Those experienced in investing in the stock market might go into crypto assuming it’s the same concept with the same set of rules. This couldn’t be further from the truth and investing with that approach is a good way to get burned.

Sure, there are surface level similarities, but their foundations are very different. The first to mention would be the purpose of the currency. Stocks are made for the sole purpose of fundraising for new businesses, wherein the investment grows with the business. On the other hand, crypto has a range of purposes and will rely mainly on hype to stay afloat.

The main appeal of crypto, and its main drawback, is that it is a decentralized system, meaning that it has no need for a bank. Stocks are backed by groups of powerful that keep it well-regulated with annual audits, whereas anyone can get involved in crypto. This has led it to be seen as the “people’s currency”, allowing anyone to make money without a lot of red tape, but also makes for a risky investment when a lot of scams are getting through.

A lot of these scams are typical of traditional currencies too, with scammers striking up relationships or posing as investments to deceive people of their money, but there are additional crypto-specific scams out there that can make it difficult to navigate the crypto market.

For example, NFTs, or non-fungible tokens, are designed to verify the identity of a piece of digital artwork, meaning that it is unique to the buyer. Since their arrival, there have been of course a range of fake NFTs sold to art-lovers with no verification, banking on the naivety of the buyer.

There are also ICOs, or Initial Coin Offerings, that act much like stocks to offer fundraising opportunities to businesses, without having to sacrifice a share of the business, like stocks. Fake ICOs have started appearing, taking money from investors, and disappearing.

Keep up with the news

Because cryptocurrency is so new, scams pop up and countermoves immediately appear, usually negatively affecting everyone outside the scammers.

The best source of information to try and avoid scams and approach legitimate customers, believe it or not, is Reddit. Redditors being such a fan of cryptocurrency have curated their own community where they freely exchange advice and enquiries online, which is another stark change from stocks’ Wall Street secrecy.

Cryptocurrency has also moved online and it now freely used to pay for services, especially in the online casino sector. What better place for the apparent roulette of crypto to find a home than when funding a night of gambling. Important though because as the use of cryptocurrency continues to become mainstream, it could have impacts on its value and long term uses.

Beyond that, cryptocurrency’s volatile nature means that the slightest event can affect your coin. Keep one eye on the business section of the newspaper to keep up to date with how the economy is affecting things, but also one eye on world news. You’d be surprised what can change things. Sometimes it is as little as a celebrity Tweet that can send a coin soaring or crashing. Sometimes it’s as big as China rumored to be replacing their national currency with crypto. That might sound good, but their first move was to outlaw crypto trading amongst its citizens, sending crypto falling.

Keeping up with the news is the best way to be prepared for the low lows and high highs of cryptocurrency.

Look into the coin

It would make for a much more secure investment if you look into the coin you intend to buy into. Forget the technological aspect for now, as it won’t serve you and instead look at the people behind the coin.

Coins are created by teams, each with their own purpose for the coin. Typically, these are outlined in the coin’s white paper. If the coin you are considering doesn’t have a white paper, congratulations, you’ve found your first red flag. Dump it. This is your money we’re talking about. If they don’t take their coin seriously enough to write a white paper or to keep it professional, it’s not worth investing in.

The white paper will outline what the initial purpose of the coin is, but also what their long-term goals for the coin are. The long-term goals are especially important because they will indicate to you just how ambitious the team are. If they don’t expect the coin to grow over the next 5-10 years, then there is no room for your investment to grow, and it’s likely the team are simply looking for a quick buck. Other red flags are if you think the ambitions of the coin are too unrealistic to make possible.

Next, look into the team themselves. Check their qualifications. Do they have any experience? Does their past experience then give away any flagged behaviors?

A team managing a cryptocurrency has the ability to steer it into success or failure, sometimes purposefully, so you will want to be sure their intentions line up with yours.

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