With the continuing volatility of bitcoin and other cryptocurrencies, and millions of dollars’ worth of cryptocurrencies stolen by hackers in recent months, what should investors be aware of before pouring their hard-earned money into digital assets? Please find a listicle below which looks at the top five things investors need to be aware of before investing in a new cryptocurrency, written by Gianluca Giancola, Co-founder and Head of UX & Design at blockchain-powered loyalty ecosystem qiibee.
Seth Klarman’s Collective Wisdom: Risk Analysis Is The Key To Investment Success
Please note this article is based on publicly available information, however ValueWalk just received Baupost's 2018 letter moments ago and will have exclusive coverage shortly. Seth Klarman is widely regarded as one of the best value investors the world has ever seen. Over the past few decades, his hedge fund, the Boston-based Baupost, has achieved Read More
5 things to be aware of before investing in a new cryptocurrency
As the blockchain and crypto space continues to grow and thrive, the industry has become increasingly mainstream and piqued the interest of many first-time investors. As the industry is still very much in its nascent stages, people getting involved with cryptocurrency investing often have little to no knowledge of the space and the challenges involved.
Although the industry holds so much potential and there are many exciting projects emerging on an almost daily basis, on the flipside, there is also a large number of projects that won’t succeed and investors risk being left out of pocket as a result.
Early adopters of blockchain technology are big supporters of its amazing capabilities and endless opportunities, but what are the main things to consider before you invest in cryptocurrencies?
- Research the company providing the cryptocurrency
Cryptocurrencies currently attract a lot of ‘hype’ investors. These are ill-informed investors who don’t understand the fundamentals of what they are investing in and are looking to make a quick buck. These type of people make investments a lot riskier. Make sure you do your research into the company, as well as its product or service, to help you decide whether the investment is a good idea.
Fake news is as prevalent in the cryptosphere as it is elsewhere. Don’t take advice from supposed “experts” at face value or on a whim. Look for second and third opinions from credible sources and do your homework.
- It is difficult to value new cryptocurrencies
Cryptocurrencies don’t have the same information available that has traditionally been used to value stocks on the stock market. This means that there are many unknowns when it comes to understanding the expected return or predicted growth of the asset. For example, many new cryptocurrencies have yet to generate positive cash flow.
- ICOs are much easier to hold than IPOs
While only well established private companies are able to distribute shares to the public through an IPO, through an ICO, the creation of digital tokens on the blockchain can be carried out by any company.
Some of the companies carrying out ICOs don’t have a product or service available on the market, while with IPOs, companies are required to fulfill certain requirements, including having a minimum earnings threshold and a good track record. These requirements allow investors to gauge the financial standing and feasibility of the business, decreasing the risk in the investment.
- Research what exchanges trade the cryptocurrency
Many cryptocurrency exchanges are subject to hacks and data security breaches. Therefore, make sure to do thorough research on which exchange to use to trade your cryptocurrency, and ensure, insofar as it is possible to do so, that your data and funds are secure. Don’t forget to check where your cryptocurrency exchange operates from, as some operate from countries where consumer protection is significantly weaker.
- Make sure you have an exit strategy in place
There are a few ways to sell cryptocurrencies online including via an exchange, direct trade, or a peer-to-peer transaction. With the volatile price of cryptocurrencies, make sure you are aware of the transaction costs involved in your exchange.
The old investing adage holds true even for cryptocurrency investing: buy low, sell high. Avoid selling your crypto asset when everyone else is so your potential returns aren’t lowered dramatically. Smaller, newer cryptocurrencies may also be a lot harder to trade due to the lower numbers of people holding them, so ensure you are aware of the risks involved before investing your hard-earned money in them.