Cryptocurrency has come to represent a very intriguing investment opportunity for a lot of people all over the world. However, it’s also a brand new asset class, and as such one that requires careful consideration. Addressing that point, our article on whether you’re ready to invest in cryptocurrency delved into some of the things people need to think about before buying in — such as gaining an understanding of the market and learning to expect ups and downs. Those indeed are some of the broad considerations to keep in mind. In this follow-up, however, we’ll look at some more specific things to know before making an investment of this kind.
1 – Cryptocurrency isn’t Just Bitcoin
Bitcoin has held the highest value of any cryptocurrency since the beginning. It was also the first digital currency of its kind. As a result, it is rightly thought of as the de facto leader of the pack. However, investors should not allow that fact to obscure other options. There are plenty of other interesting cryptocurrencies at this point that, while not as valuable or well known as bitcoin, offer similar investment opportunities. A rundown of the top altcoins lists a few that you should keep in mind, such as ethereum, ripple, dash, IOTA, and bitcoin cash, among others. None are definitively better or worse than the others, but a thorough investor should consider all options.
2 – You Don’t Have to Own Cryptos
Most investors look at the cryptocurrency market and see investment as a straightforward practice: purchasing coins (or percentages of them), holding them, and selling them for a profit down the road. This may be the primary means of cryptocurrency investment, but it’s also not the only way. These days, it’s also possible to invest via cryptocurrency CFDs (or “contracts for difference”). A guide to cryptocurrency CFDs outlines how exactly this process differs from typical investments, as well as what the benefits are. To state it concisely though, a CFD is essentially a contract predicting an upward or downward shift in value for a given commodity over time. Rather than owning the commodity, an investor places money on the idea of its value increasing or decreasing. This allows some crypto investors to profit off of both gains and losses, and also enables trading at all hours, any day of the week.
3 – There Are More Options Coming
We mentioned a number of prominent altcoins above, and they have broadened the cryptocurrency market fairly substantially already. However, anyone considering investing in cryptocurrency should also keep in mind that there are still more options on the way. Additional altcoins are still being created; stablecoins (cryptocurrencies backed by more conventional assets such as fiat currency) are emerging more frequently; and even some government-backed banks are looking into creating digital currencies. This is not to point investors toward any one development in particular so much as to say that it’s worth keeping in mind that this market is still developing.
4 – 2017’s Surge Wasn’t the Norm
Many people who are interested in cryptocurrency investment recall seeing bitcoin surge to nearly $20,000 in value toward the end of 2017. Indeed, it’s easy to look at an event like this and want to catch the next wave. However, while there is still undeniable potential for cryptos to spike or even go on sustained runs, it’s important to recognize that what we saw in 2017 was not normal. Prices crashed soon after the spike, and some saw the movement as misleading in the first place; market manipulation is a potential cause identified by some researchers, for instance. Compelling research points to “coordinated price manipulation” as having compounded the surge. Again, that’s not to say there isn’t lucrative potential if all goes well. But investors shouldn’t expect another 2017 to occur out of the blue.
The most important thing to do before investing in cryptocurrency is still to educate yourself on the market, and the specific asset you’re considering. Keeping these points in mind will help to broaden your understanding though, and ensure that you enter the process with clarity.
