It’s all over your social media feed. You’re seeing it reported in the news, on your financially savvy friend’s Facebook posts, in celebrities’ Instagram stories. And what about that seemingly nice lady who DM’d you about all the money she’d made?
I’m talking about cryptocurrency, of course. It’s everywhere, and you’ve decided that you can’t ignore it any longer. You know there’s money to be made. But you also know that investing in cryptocurrency can be extremely risky.
Which is why now you’re stuck wondering whether to buy your own coins. Is crypto actually worth it? And what do you need to know before you take the leap?
What’s Ahead:
Why should you consider crypto investing?
If you’re a think-ahead kind of person, you’re probably particularly keen to jump on the crypto bandwagon. After all, it seems like the entire world is going digital (Metaverse, anyone?) and digital currencies are the next logical move. Some say that Bitcoin will be fully embraced as a form of currency one day. Time will tell. But you probably don’t want to miss out.
The other incentive for buying crypto is the returns (check out this article for some interesting numbers). Some of the returns (although not all) have been astronomical compared to the stock market or a basic savings account.
Of course, we’ve also seen epic crashes in the crypto market. And so, before you get too excited about making money with cryptocurrency, you need to be aware of what you’re getting yourself into.
Here are five things you should know before investing in cryptocurrency:
1. Cryptocurrency is extremely volatile
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Despite what those who are quick to brag about their profits want you to think, the market is volatile and it’s easy to lose money if you panic when prices go down.
I once started writing an article about investing in cryptocurrency because the prices were going through the roof, and I really wanted to share the news. By the time I returned to edit the article a few days later, there was a crash and the prices of every form of cryptocurrency had tanked.
Not only is the cryptocurrency marketplace open 24/7 around the world, but wild price fluctuations can happen at any time.
And it doesn’t matter whether you’re picking Bitcoin or Ethereum or something else altogether. If you look at the prices of any coin, the fluctuations over the last few years have been a lot to stomach.
What does this mean for you?
- Don’t get into crypto if you can’t handle the volatility.
- Don’t panic and sell everything when prices drop.
- Only invest money that you can afford to lose.
I see too many eager young folks getting into cryptocurrency before they’ve even gotten a handle on personal finance basics. Save some money, build that emergency fund, and learn to budget first.
Don’t invest money that you want access to in the near future, especially if volatility intimidates you. For example, if you have a wedding coming up or are planning to buy a house, you shouldn’t be risking your money on cryptocurrency in case your coins are down in value when you need to access the funds.
2. There are many ways to make money in cryptocurrency
You’ve likely heard the ridiculous success stories about how some rookie investor made bank from a meme coin. Remember that these stories are the exception and not the rule.
However, there are ways to make money other than looking for the next dog coin that will go to the moon (a common phrase in the community for when something is about to take off).
How do you make money in cryptocurrency?
- Buy low and sell high. The most basic investing strategy. When there’s a pullback (coin prices drop), you’d buy, assuming you’ll earn on the upswing.
- Mining crypto. This involves using your own computer to support the blockchain, in exchange for some coins. It typically involves some hefty computer power, although it is also possible to loan your computer power out if you don’t have the resources to fully mine yourself.
- Staking crypto. Staking involves contributing coins to validate transactions — you’re basically loaning it to the blockchain in exchange for more coins. I personally have just started with staking and am a fan due to the interest rates.
- Crypto lending. Peer-to-peer lending in which you lend your crypto to another borrower for a predetermined interest rate.
3. Most cryptocurrency predictions are way off
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If you ever want a good laugh, I suggest you Google, “Ethereum price prediction” or any kind of prediction from the last few years. The predictions are always all over the place.
Experts seem to be, frankly, clueless as to what’s going to happen. That’s not to say there’s no value in monitoring the forecasts (we’ve published our own predictions on the future of cryptocurrency). But you have to keep in mind that predicting any market is impossible.
What should you know as a new crypto investor?
It’s important that you manage your expectations when investing in crypto.
We naturally want to invest where we’re going to have the highest returns possible with the least amount of risk. But you also have to accept that high returns come with high risks.
Predictions aren’t spoilers. Predictions are a glorified guess. You never know what might happen to an entire market. And so, as you’re following the forecasts, keep in mind that it all still comes with risk — no matter how convincing those predictions may be.
4. There are lots of cryptocurrency scams
“Find out how I turned $1,000 into six figures.”
You’ve probably seen some variation of this floating around. Possibly on Instagram posts or in your DMs or email inbox.
I’ve personally received many messages on social media promising me astronomical gains from folks posing as crypto experts. These messages are always unsolicited, and they often seem too good to be true.
Charlatans have turned to the crypto space because they know that it’s complicated and that there are many folks who are looking to get rich quick.
What are the typical cryptocurrency scams?
- Rug-pull. This is where a token is a total scam and it just disappears in the end. These scams brought in over $2.8 billion in 2021 alone.
- Pump-and-dump. Celebrities and influencers will pump up a coin only to get rid of it when the value goes up.
- Complete fraud. You send your money to a wallet only to never see it again. The person promises you amazing returns but then disappears once you send the money.
How do you avoid cryptocurrency scams?
- Don’t buy random coins.
- Don’t send money to a wallet unless you’re absolutely sure it’s legitimate (see our picks for the best crypto wallets).
- Don’t follow complicated instructions that you don’t fully comprehend.
- Don’t take investing advice from complete strangers on social media.
- If it sounds too good to be true, it always is.
5. There will always be missed opportunities in cryptocurrency
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If there’s one thing I can confirm about cryptocurrency investing, it’s that FOMO is common. There will always be a coin that outperforms the rest of the market.
What does this mean for you when investing in crypto?
Take the time to research different forms of cryptocurrency before you go all in. And accept that you have limited resources — you can’t buy it all. There will always be a better investment out there. Try not to stress about the investment you didn’t make.
Bottom line
It seems like everyone and their grandmother is investing in cryptocurrency these days and, if you’re not, you’re missing out. But before you make the leap, I want you to be aware of what you’re putting your money into.
Cryptocurrency can be a worthy investment. Just ensure that you’re only risking money you can afford to lose.
Featured image: DedMityay/Shutterstock.com
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