Invest in Cryptocurrency: How to Protect Yourself

Posted on December 1st, 2019

Investing in cryptocurrency can yield large sums of money. I have personally benefited greatly from my investments in Bitcoin, Ethereum, Ripple and other coins that I became an early adopter, when they first entered the market. It has given me greater income and allowed me to spend more time doing what I enjoy. There are many benefits if you choose to invest in cryptocurrency.

There is a lot more to learn.

In the past few months alone, prices for these assets have soared. There are now countless coins to learn more about and bet on (or against). At the same time, it has become increasingly challenging to be patient and contend with alternative, more stable investment opportunities (like the traditional stock market).

That being said, investing in crypto is extremely risky. As a new investor, there are many negative consequences that you have to be on the lookout for. Here are some reasons against investing and ways to protect yourself if you do:

The market is extremely volatile.

Mt. Gox lost millions, Bitconnect closed and was seen as a scam. Even over the past month, Bitcoin has fluctuated a tremendous amount. Plus, it is not even close to the most volatile currency in the crypot-world. Prices are rapidly moving up and down. If you end up buying at the wrong time, you could lose a great deal of money extremely quickly.

There is a lot to understand.

Many people have been buying cryptocurrencies hoping that they can make easy money. It is a tempting approach since many others have done so successfully. Investing in something as complex as the blockchain, though, with limited knowledge is very risky. Some coins should be valued higher or lower, but a large reason for the volatility is that people do not know how much they should be worth.

An adoption timeline.

The adoption timeline to invest in cryptocurrency is extremely ambiguous. Although many businesses have begun taking cryptocurrencies and countless blockchain companies are popping up, the point in time of widespread adoption is unknown.

The use of coins in everyday life is, ultimately, what their value should be based on. That makes any current investment in cryptocurrency very speculative. This is especially true since there are low odds that all of the current coins are going to survive and thrive in the future.

Survive and thrive.

There is a good chance that a handful will survive and thrive but how much each will be worth? Which offerings will be worth something wonderful? All of this information requires a deep understanding of the blockchain and our society. It is not just about understanding the blockchain or the technology behind any given coin. The success of cryptocurrency will also be highly contingent on societies, governments, and the ways in which people adopt them.

You could look from an objective point of view and claim that the use of a certain application would help society, but that does not mean its implementation is a sure thing.

The market is going to pop at some point.

There is also almost no doubt that the crypto market is going to pop. That might only happen with certain coins, and it could happen quite some time from now, but there are high odds that it will come eventually.

It is true that the same could be said for the stock market. The difference is that due to the rapid and extreme success that cryptocurrency prices have had over the past year, it is likely that the market could crash as hard as it came up. Stocks have a lower chance of being as heavily overvalued as crypto.

After seeing high crypto prices and the countless people who have profited accordingly, it is tempting to jump in. Chasing crypto is risky, though. The high prices might not be justified. Bitcoin jumped to $20,000 and fell back down to 11K, and the same could happen for many other coins.

Huge sums of money can no longer be made with the mainstream currencies.

People have 10x’d their money on coins like Bitcoin and Ethereum. Those large opportunities within the already successful coins may no longer be available. The odds that Bitcoin is going to increase by even 100 percent are becoming less and less likely .

Though, there is still potential to make significant money on less mature coins. The issue is that investing in cheap coins is extremely risky. There are many people who are pumping and dumping coins to try and turn a quick profit. They are building up value of a coin by hyping it up and investing a significant amount of money, just to sell their assets shortly thereafter. If you end up buying one of these cheaper coins at the wrong time, you can take a large loss.

Diversification in any market has always been the key.

There are clearly large risks if you choose to invest in cryptocurrency. Depending on your risk preferences and the stakes you are playing at, though, you might choose to still invest.

If you choose to do so, you should take some steps to protect yourself. Beyond understanding the coins that you are investing in (which you should do!), you should diversify your investments.

If you are bullish and decide to invest only within crypto, that is extremely risky. You will be making a financial bet that cryptocurrency is going to succeed. Despite all of the signs pointing to that statement being true (and I believe it as well), if it ends up not being the case, you will find yourself in a dire situation. At the least, you should diversify with different coins and not put all your money in the same one.

A Practical Approach to Invest in Cryptocurrency

More practically, though, you should diversify with non-crypto assets when you invest in cryptocurrency. Putting all of your money into the blockchain could yield huge losses. Spreading your money among different asset-types will keep you financially stable, even in the case of a crypto crash.

Chalmers Brown - Former CTO of Due

Chalmers Brown - Former CTO of Due

I'm Chalmers Brown and former CTO of Due. I'm a big fan of technology and building financial products that help people better their lives. I have a passion for financial products that help people. I build complex financial infrastructure protocols that help scale financial companies. They are secure and support millions of customers worldwide.

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