Investing in Cryptocurrencies: What to Keep In Mind
To say the cryptocurrency space has taken off in the past year would be an understatement. The number of digital currencies continues to proliferate, and the industry saw a net market cap of nearly $180 billion at its highest point this summer. The leading cryptocurrency, bitcoin, has climbed to record highs of almost $5,000 per coin. Beyond that, the cryptocurrency space is highly volatile, meaning there are ample opportunities for investors to score big wins.
However, there are also risks associated with the industry as well. These are some things to keep in mind when considering a cryptocurrency investment. (Related: Showtime Websites Used Visitors' CPU Power for Crypto Mining.)
Price Swings Are Common
Price swings are incredibly common in the cryptocurrency space, even among the biggest coins like bitcoin and ether. Part of this is due to the fact that cryptocurrencies are largely unregulated, meaning that swings of 25% of the total value or more are not unheard of. The Next Web suggests that “this variability likely will not go away unless some sort of regulation or centralization [is] introduced, which would then defy the core of what cryptocurrency is.”
Safety and Security
The unregulated nature of cryptocurrencies also means it’s important to take extra precautions to invest safely and securely. Major hacking events have been common, with investors losing thousands of dollars or more and, in many cases, hackers going free. Finding a reliable and trustworthy cryptocurrency wallet is the most important first step. Some of the best options are wallets which are also linked to exchanges, allowing you to store and trade your cryptocurrency assets from the same place. Still, web-based platforms tend to be less secure than their alternatives.
Market Trends and Investor Perception
Unlike stocks and other traditional financial instruments, cryptocurrencies tend to fluctuate based on public perception and large-scale trends. Market caps and performance data are useful in selecting stocks in which to invest, but they are not so important for coins. Rather, cryptocurrency investors should look to the news stories swirling around a particular cryptocurrency and aim to predict trends.
Beware the Bubble
There are many investors and analysts who feel the cryptocurrency space is a bubble. Prices have grown at a tremendous rate, and these investors believe the industry is not sustainable over the long term. If this is the case, and as with any bubble, it would be difficult or impossible to predict exactly when the industry would crash.
However, savvy investors tend to keep this possibility in mind when making investment decisions in the cryptocurrency space; diversifying your holdings is a good way to protect yourself against the possibility of one or more coins suddenly failing.