There is no doubt that cryptocurrencies have created a new market for investment. With digital currencies such as Bitcoin reaching values of over $19,000USD, cryptocurrencies are of extreme interest to mainstream media, consumers, and investors. Those on the forefront of investing see the value of adding these high-risk items to their investment portfolios.
While expert investors have a propensity toward investing in high-risk, high reward opportunities, the risks associated with cryptocurrency investments are unique in nature. While interest in cryptocurrencies is skyrocketing, the associated regulations around digital currency are not keeping pace. The notion that a country may impose restrictions on a cryptocurrency is enough to negatively impact its value over night.
Cryptocurrency investments have the opportunity to offer significant ROI, however, consumers need to ensure they are doing their due diligence before investing. While many companies involved in cryptocurrency can offer a significant profit, it is crucial that consumers looking to invest can spot the legitimate opportunities among the sea of options.
With that in mind, here are the top 5 things you should know before investing in cryptocurrencies.
- Do your research.
Everywhere you turn in crypto, there is another hot take or sure thing. At Block X, we have assembled a team of industry experts dedicated to researching the best investment opportunities. If you’re investing into crypto on your own, be sure to put together a personal due diligence checklist by asking yourself:
● Do they have a real team? Review their presence on LinkedIn to verify their team as experienced and legitimate players in the cryptocurrency space.
● Can you open the company’s code base? Where possible, review the company’s code base to verify its whole collection of source code.
● Is this addressing a real problem? Has the company identified an area of opportunity or is it a copycat of an existing offering?
● Is there proof of concept or beta? Ensuring the company can offer proof of concept or beta will mean your investment has a greater chance of seeing returns as the company matures.
Be responsible
Cryptocurrencies can belong in any investment portfolio but should be treated as high risk. Put 10–20% of your portfolio into crypto investments but always ensure your portfolio remains diversified to mitigate extreme risks.Be realistic
Crypto purchases are notoriously oversold as rags to riches and 1000% gains. While that has been the case before, and may occur again, your investment strategy cannot hinge on this. Be realistic about your investment; consider the .com boom in which some of the highest market cap/valued companies of our time emerged but many, if not most, fell by the wayside. When investing, keep in mind:
● It is crucial to diversify (yes, even with crypto).
● Stick to blue chip stocks — such as Bitcoin, Ether, LTC — to be confident about the quality, reliability, and resilience of your investment.
● ICOs are the new penny stocks. If you do want to venture into a high-risk investment, ICOs may be of interest.
● Take some gains off the table when you can. It’s all paper money until you cash it out — that is, until crypto replaces dollars.
- Be vigilant, borderline paranoid
Most of the concerns surrounding hacks and security, while well-founded, are also avoidable, even for the non-tech savvy. Vigilance can come in the form of selecting the right blockchain company to manage your investment. Selecting an organization like Block X that has a reputable team and is dedicated to conducting extreme due diligence will ensure your investment is safe.
If investing on your own, remember:
● Private keys should obviously remain private and not shared
● Use reputable exchanges and wallets. Much like you wouldn’t deposit your life savings into a pop-up bank with a cardboard sign outside, you should do your homework on the entities responsible for holding your funds.
● Move funds off exchanges and into wallets you control, for example, cold storage. I can’t emphasize enough how much less dependent this makes you on other entities.
- Track your gains and losses
As crypto is global and doesn’t yet classify as a ‘real investment,’ many say capital gains don’t apply. Regardless, you should track your gains and losses for your own personal knowledge to see how your portfolio is doing. As countries start to regulate crypto-related capital gains taxes, you’re going to want to be in a position to pay your fair share and not deal with the IRS or CRA.