6 Things You Should Know Before Investing in Crypto
Cryptocurrencies have exploded onto the scene since the advent of Bitcoin in 2008. There are thousands of crypto projects that deal with everything from mediums of exchange to finance and logistics. Investing in cryptocurrencies is becoming popular as more users are flooding into the market.
To avoid any unpleasant loss of capital, investors must have a solid understanding of cryptocurrencies. Knowing a few things beforehand can save prospective investors from a ton of anxiety.
There’s Plenty of Volatility
Bitcoin’s price started at fractions of a penny and has surpassed $50,000 in 2021. In 2017, the price of Bitcoin touched $20,000 and later hovered around $3,400 during parts of 2019. Large price swings over extended periods can be drastic.
However, price volatility isn’t only a matter of months. Cryptocurrencies can make double-digit percentage gains over a day or even over a few hours. Navigating the cryptocurrency space requires patience and a sound understanding of the basic principles of finance.
With time, as more users enter the space, cryptocurrency prices should become stable. For now, volatility is a factor any investor should expect to deal with.
There Are Many Unknowns
Bitcoin was founded by a person or team that is known by the name Satoshi Nakamoto. This means that not even those responsible for the king of cryptocurrencies are known to the public.
The cryptocurrency market is still in its early stages. Government regulation and other factors that may come into play are still unknown. Therefore, someone choosing to invest in crypto will have to factor this uncertainty into their decision-making.
It Can Be Used for Fraud Activity
Government officials highlight the fact that cryptocurrencies are used for illegal activity. While this may be true, there isn’t enough proof to suggest that crypto pays for more illegal activities than fiat currency.
On the other hand, the number of scams that can defraud investors from their funds is countless. Safeguarding the storage of cryptocurrency is a concern that investors should not take lightly.
It Can Have an Unproven Rate of Return
With the volatility being what it is, predicting a rate of return is virtually impossible. The fluctuations in the price of Bitcoin mentioned above are a clear example of this.
Considering Bitcoin is currently the biggest cryptocurrency by market capitalization, the rate of return of other cryptos is an even tougher task.
Crypto Projects Can Fail
Some cryptocurrency projects were created solely to defraud investors. However, most projects are well-intentioned and strive to build sustainable projects. This doesn’t mean that they are excluded from failure.
Cryptocurrency projects have been known to fail, resulting in the connected currency going to zero. Understanding a project’s fundamentals can help investors determine how viable a cryptocurrency is. Furthermore, knowing how to read price action can provide a level of knowledge as to what is expected to happen in the near future.
Education Is the Key
The more investors know, the better decisions they will be able to make. Prospective participants in the crypto market can arm themselves by learning about fundamentals and technical analysis as well as the history of the space and its most prominent players.
SoFi Invest is an all-in-one investing app that allows investors to buy crypto, trade stocks, and ETFs or start automated investing. Those wishing to learn more about the crypto market can simply search up a cryptocurrency guide on the web. It is recommended that you read one before stepping foot into the market.
Since the company was founded in August of 2011, SoFi has managed to receive over $1 billion in funding and in 2020 celebrated 1,000,000 members. SoFi helps its users attain financial independence through its innovative services.
Dip Your Toes in the Crypto Market
Investing in cryptocurrencies can be exciting and wildly profitable as easily as it can be risky and disappointing. Taking the time to learn the ropes will increase investors’ gains while minimizing losses.
This is not to be construed as financial advice. Consult with a professional advisor before investing.