6 Tips for investing in cryptocurrency
Published 08/16/2021
1. Understanding of Blockchain technology
Before investing in this type of currency, make sure you understand this innovation and, in particular, the technology behind it. Recently, it all comes down to thoroughly studying the Blockchain technology that cryptocurrencies originate from.
Also, and especially, pay attention to the details that differentiate the coins from each other: the programming language, the blockchain validation system, the governance, the ability of the currency to adapt to an order of magnitude change in demand, for example.
2. Be aware of the token expansion limit
The unit of cryptocurrency is called a token. The number of tokens created can be limited, as is the case with Bitcoin, which will be limited to 21 million Bitcoins in circulation, which makes the product relatively rare and contributes to its value. But a cryptocurrency can also follow a deflationary pattern. In this case, the amount of money in circulation is unlimited. The pass of time could lead to stagnation (or even a decrease) in its price.
3. Check the transparency of the virtual currency
Favor a cryptocurrency with a website with clearly identified investors and developers, a project presentation, and possibly a roadmap indicating the anticipated technological advances. If none of this is accessible, be careful, you could invest in a Ponzi scheme.
4. Stay informed about cryptocurrency websites
It is vital to be up to date in this ultra-niche and ultra-geek field and therefore ensure investment in the best conditions. It is necessary to have all the information about the target asset; it is better to look for the data where it is located, which is to say on the Web! Many cryptocurrencies offer their websites but broaden your search to community websites like Reddit or Slack, which will allow you to post, view articles, discuss and share issues and opinions. The Bitcointalk forum fulfills the same role but is exclusively aimed at cryptocurrencies (not just Bitcoin because it has a section dedicated to altcoins).
5. Know the quality of virtual currency developers and their funding.
What makes the success of a cryptocurrency above all else is the quality of the developers who are at the origin of this innovation. So check out their experience, training, work history, etc.
Do they form a close-knit team with a good relationship?
You can verify that their interactions in the Slack or Reddit community are friendly and constructive.
Finally, it is necessary to know who pays the developers: a company or a private equity fund outside of cryptocurrencies? Are developers paid with their cryptocurrency? The important thing is to be able to assess the motivation of the developers and the possible conflicts of interest.
6. Limit your investments in these high-risk volatile assets.
Volatility is one of the main characteristics of cryptocurrencies. Thus, the value of a cryptocurrency, its price, can increase or decrease very quickly, in an unpredictable way. In the question: its young economy, its unusual character and especially its sometimes illiquid markets. And the number of platforms adds to the lack of liquidity of the tokens. Thus, at the end of 2019, “a volume of 143 bitcoins is enough to vary its price by 1% on the Bitstamp platform. Coinbase and Kraken are much more liquid, and it is respectively 456 and 672 bitcoins that must be exchanged to move the price of the leader in crypto by 1% ”, reports the site Les Echos.
Therefore, investing in cryptocurrencies is not recommended for cautious profiles with a strong aversion to risk. For others, think about not keeping a large part of your savings in Bitcoin or others that remain high-risk assets anyway. There is a real risk of losing much of the money invested in this way.
If the crypto adventure tempts you, do it with money that you are willing to lose. It should be an investment that represents a tiny part of your financial assets. Cryptocurrency is more of an experiment to test if you want it than a reasoned investment made regarding diversification. Wanting to make money fast is never a good reason to invest in cryptocurrencies.
At El Paisa Multiservices we want to help you with your financial movements. You can contact us if you have questions about our services.
By Ingenuity & Solutions
