5 Things to Know Before Investing in Cryptocurrency

July 25, 2021

MHC Digital Finance - March 23, 2021

With the recent buzz and all-time highs for crypto currency, more and more people are not only beginning to catch on, but are wanting to take part. The unfortunate side to this?

People jumping on the bandwagon without knowing or thinking about what is being done. Involvement without specific goals in mind and buying without thought. 

 

There are a few things that everyone needs to look at before they take the plunge and head into the realm of crypto investing. Hopefully, this article will shed some light and help investors to navigate the waters of this fairly-new realm of adding to their net worth.  

 

By no means is the following to be taken for investment or financial advice. Everyone must make their own decisions as to the depth of any investment. We all should be aware that any kind of investment has no guarantees. The crypto world is very volatile and increases can be made quickly, as can decreases. Be very careful, and as with all investments, don't spend what cannot be afforded.

 

So let’s get on to it. Here are 5 crucial things to look at before taking part in placing hard earned money into such a volatile market. 

 

1)  What’s your budget? 

Despite much of the hype around crypto, investors don’t become millionaires overnight.  Budgeting is the start. Set and stay within a budget. As your pay increases come, raise that budget. Taking action is far better than missing an opportunity.  It’s just a matter of exposure. 

 

2) Know your Investments 

The number of crypto choices available is extraordinary.  There are thousands of Crypto Coins on the market, with new ones coming out every day. Some have real potential, others are just ‘Pump & Dumps”, and some don’t go anywhere at all.  This is where research comes into play.  

Find out why the coin exists. What utility will they serve - is it worth it? Read the White Paper.  Research the history of the principals.  Is it a niche that is growing? Remember to listen to your gut also, many people tend to “know” when something just doesn’t “feel right.”  Pay attention to those feelings, but remember to use your head as well.  

Due diligence is key to making the decision whether a coin is the right one to invest in or not.  

 

3) Beware of Scams

We have all seen them; claims of high returns without risk are found everywhere..  “Place $100 with us and we will pay you $5,000 a week for life!!”  

Remember the adage: if it sounds too good to be true, it probably is.  Yes, they do exist, but they are very few and far between with 98+% of these statements being false.

4) Keep Your Emotions Out of It. 

We can all be affected by FOMO (Fear Of Missing Out).  This is a situation where emotion says - “Just a little more!"; very dangerous.  Always use your head to buy or sell.  This goes for any investment, not just Crypto.  Set a profit and loss you are willing to accept and follow your plan.  You can always re-evaluate the plan if things look better (or worse) along the way. 


Investment Strategies are the make or break of any portfolio.  Make a plan, follow the plan,  re-think the plan and make necessary changes. Emotions have no part in any kind of investments, let alone crypto.  

 

5) Private Keys. 

Whether the strategy is to buy and hold, trading (another article), or a little of both, know the difference between centralized and decentralized crypto wallets and exchanges. This is a major consideration for all types of coin storage.  

 

Centralized wallets keep all coins in one large account, with each wallet-holder having a blip on their screen showing how much of that main account is theirs.  This is an invitation for hackers to come calling.  

 

Centralized exchanges and wallets make it easy to buy and sell crypto using national currencies or credit cards; a great way to gain some coins for investment purposes. But to store them there is asking for potential trouble, as hackers love centralized wallets and exchanges; one big pile of coins to their eyes.

 

Alternatively, decentralized wallets segregate each wallet holder’s coins, storing them separately from everyone else’s, with each wallet holder having a unique location for their coins. This location is backed up with what are called Private Keys; much like the combination to a safe. 

 

A good decentralized wallet or exchange will encourage the user to write down their key after opening an account and before allowing access to the rest of the system. There might even be a test.  This ensures only you have access to these keys.  Hackers stay away from decentralized exchanges and wallets because it is too difficult to hack in to too many little piles of coins for them to be bothered with it.

 

Keep those keys written down in a VERY secure location. A good idea is to engrave the key on a piece of metal before storing as there will be no risk of deterioration, and then store that in safe.  Without those keys, you will not be able to gain access to your account should your device go swimming or if the dog eats it, so they are certainly the most important part of cold wallet storage.

 

Conclusion

There are so many things to consider before investing in cryptocurrencies.  The above 5 items are just a start towards gaining peace of mind when investing in this industry. With research being the main safety tool before going down the crypto path, do read many articles on the subject and go in with your eyes wide open.  

 

Knowledge is the key.  

 

It can be a very lucrative investing in crypto. With the right research, planning and diversification, your crypto journey will help gain the increases sought after. In some cases, more than you may have anticipated. 

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