Is investing in crypto for you? Ask yourself this question if you think about generating income in the future. Here’s what you should know before you put your hope in cryptocurrencies.
When talking about cryptocurrency investment, make sure to not only think about returns that are potentially higher than the traditional stock market. Whereas this might be true, there are a couple of things unique to crypto markets specifically.
Value vs Ownership
Just like with the traditional markets where you look at the performance of the stock and base your investments on trends and the growth potential of the company, in crypto markets, you also follow general tendencies and check if there is a room for the project’s improvement.
However, with crypto, mostly you invest not in the company, but rather in the value of the currency, which might be Bitcoin, Ethereum, or any other coin. That contrasts with the investing in traditional stock markets where you purchase a share of the company, or, in other words, a part of it.
Pre-programmed Supply vs Natural Demand
Both, in crypto and in traditional markets, demand and supply defines the price of the asset. Bulls and bears try to steal the scene, taking care of liquidity, trading volume, volatility and trends.
But in comparison to stocks that don’t have a cap imposed on them, crypto markets very often do, which also might affect the price significantly.
For example, one of the most favourite topics for discussion on the web is if Bitcoin’s price will someday cross the mark of $100K. How so? The coin’s supply is limited, and there will be only mined 21 million coins.
Volatility Spikes vs Steady Income
Volatility is the key characteristic of the cryptocurrency markets. If you’re an experienced trader, it opens the road to potentially high returns where you can go long and short within a day for example.
However, to all the newbies out there, this market may lead you to the slaughter like a lamb if you don’t know what you’re doing.
This contrasts with the traditional markets that in general grow steadily in the long run. Of course, no one is protected from black swans like COVID, and traditional markets react to that, too. But this is rather an usual situation whereas normally stocks tend to slowly grow over time.
The best cryptocurrency to invest in
First of all, let’s be reasonable. Is there the best share to invest in? In the same vein, there’s no such thing as the best cryptocurrency. However, while talking about cryptocoins that you should or shouldn’t put your money in, there are options that might fit you well. It all depends on your investment goals and investment horizon. When are you planning to make a profit off of your investment? In a month, in a year, or in two years?
With cryptocurrencies, remember that the longevity of the project might differ from the one of the traditional markets. The niche is young, so don’t bank on decades. However, a couple of years in the crypto niche sounds reasonable.
Let’s take a look at the example. Say, you want to put $1000 in Bitcoin (BTC) for a period of no more than six months. What return on investment do you expect? And which key factors support your expectations?
Normally, while evaluating fundamentals of a company’s share, you assess its business model, its competitive advantage, management and corporate governance. But while doing so with crypto, you will likely come across a few revelations. With cryptocoins, there is no such thing as a business model, corporate governance, and no CEO will ever be able to fully control them.
For example, together with Bitcoin you buy a libertarian idea pertaining to the future, a transparent mechanism for sending money and reasonable fees. However, from the legal point of view, in many countries crypto is still illegal. So, will this kind of model survive your investment period of months? Most likely, yes – with Bitcoin that has already won hearts of thousands. But you should be careful when it comes to less popular coins. So, you see, with crypto, there are specific risks and benefits you invest in.
In general, if you’ve been following crypto markets for quite some time now, you know that there are several popular coins, such as Ethereum (ETH), Litecoin (LTC) or, say, stablecoins. There are also very volatile altcoins that are good for trading. But if you want to invest in a project on a long-term basis, you should get familiar with the technical aspects of the coin, with the team of the project and with their competitors.
Are you still wondering if you should invest in cryptocurrencies such as Bitcoin, Ethereum, Litecoin etc? Evaluate your risks and think of the differences and similarities between traditional and crypto markets.
With crypto, you invest in the value of the coin; often, it’s a very special soft with the technical characteristics that protect the asset from deflation, but exactly this technical newness still confuses regulators and leaves wiggle room for further discussions.
Just like with traditional markets, while investing in crypto, it’s hardly possible to come across the best strategy, but under different circumstances, this one or that one might work better or worse.
The same train of thought applies to the best cryptocurrency – simply, there is no best asset, but Bitcoin is of course on everyone’s lips compared to such tokens as Dash or BNB. However, full-time crypto traders very well buy and sell manifold altcoins because these assets meet their specific needs. In particular, their needs in the contest of trading. But keep in mind that trading and investing are different things.
So to invest or not to invest? Just make sure to research the project very well before making rush decisions in order to avoid scam, and go with automation tools once the strategy that works for you best is found.