Whether you’re a first-time investor or part of the crypto community, there are many factors to consider before committing any money. The cryptocurrency market is an exciting and fast-paced space, with new coins and tokens being released regularly. It can be difficult for investors to know what they should invest in without doing their research.
This article will cover three things that every potential investor should know before investing in cryptocurrency!
Cryptocurrency – What Is It?
A cryptocurrency is a digital representation of monetary value that can be exchanged between people without the use of an intermediary. This means that transactions are not processed by banks or other financial institutions but instead by computers worldwide running blockchain-based software.
Cryptocurrencies exist as entries in ledgers that track ownership and transfers from one person to another. These records must be verified before making their way into permanent storage on Bitcoin’s public ledger; this process is called mining (Bitcoin uses SHA256).
Cryptocurrency has been considered “a virtual currency” because it does not have physical attributes such as coins or notes. Instead, its underlying technology allows for peer-to-peer exchanges with no middleman involved.
What is Cryptocurrency Worth?
The value of cryptocurrencies can be highly volatile. Bitcoin, for example, reached a high of $19,500 in December 2017 and then dropped to around $11k at the start of 2018. In 2021, Bitcoin has risen to above $35,000 for one bitcoin.
When you buy cryptocurrency from an exchange like Coinbase or Robinhood, it is often worth less than the market price because exchanges only offer certain coins (called pairing), which means that if you want to trade your bitcoin, with Ethereum, there are no instant options available on these platforms. This makes trading crypto very difficult!
Make sure that before investing in any cryptocurrency, you understand the concepts and information behind this currency. Basic business and investing knowledge is required, as with any other type of investment.
What Makes Cryptocurrency Different?
Cryptocurrencies have some fundamental differences as compared to traditional investments.
The decentralization of the system means that there are no third-party entities to regulate and oversee things, which is why it’s essential to take a closer look at what you want out of your investment before purchasing or trading any cryptocurrency.
Cryptocurrencies also have exceptionally high volatility rates compared with traditional investments like stocks, bonds, and gold. While this can lead to considerable increases in value over short periods, it also comes with significant risks that may not be necessary for all investors.
High levels of risk might warrant an investor who has more experience analyzing these types of assets on their own research staff because they will need help making sound decisions about when and how much money should be put in the market.
In addition to doing their own research, investors can also turn to qualified financial advisors who have experience in this area for help making investment decisions.
Cryptocurrency is a high-risk asset class and not appropriate for everyone. Still, if you can manage that risk, it offers excellent potential upside compared with other investments like stocks or bonds.
Investors should be aware of what they want out of an investment before purchasing cryptocurrency because there’s a lot at stake – both financially and emotionally. Cryptocurrencies intrinsically carry higher levels of volatility than traditional investments like stocks or bonds.