As the second wave of the coronavirus (COVID-19) pandemic continues to rock several parts of the world, people are looking for ways to safeguard themselves from the bitter experience they had during the first wave.
The first phase of the virus, which affected world economies, caused individuals to lose their jobs and several financial instruments, including gold and bitcoin (BTC), shredding a large percentage of their value.
However, the crypto market has since recovered from the virus’ ruins while other financial assets are still struggling to survive.
Based on the intriguing performance of cryptocurrencies, potential investors are seriously considering whether to venture into the investment.
Despite the massive success recorded with cryptos, these asset classes come with significant risk.
5 Important Questions To Ask Before Investing In Cryptos
Before deciding whether cryptocurrency investment is ideal for you, here are five essential questions you should ask yourself.
- Am I Prepared To Lose All My Money?
The crypto market has been fair to many people, while others who had interacted with these assets were left scratching their heads.
As widely known, cryptocurrencies are highly volatile. An asset may be up by more than 100% in a few minutes and trade below 80% the following hour due to certain factors.
Also, there are reported cases of hacks, which has seen hundreds of millions worth of cryptocurrencies carted away from cryptocurrency exchanges.
The increased risks associated with crypto investment is the bedrock of the advice that investors should “only use funds you are willing to lose.”
Ask yourself how you would react when you suddenly lose a large amount or all your funds within a blink of an eye. Is it something you can handle emotionally? If no, then you should reconsider your decision.
- What Is My Investment Goal?
Before making your first crypto purchase, try to find out what you plan to achieve via crypto investing.
If you are planning to use your crypto investment as a retirement plan, then you should reconsider. As established, the market is highly volatile, and there is a possibility that you may lose all your funds in a flash.
Placing your hope on this type of investment could end in tears since real assets do not back cryptocurrencies.
The truth is, investors could lose 100% of the value of their investment via devaluation or cybercrime.
For this reason, you should treat cryptos as an alternative investment while maintaining the hustle or job that brought the funds you are planning to invest in crypto.
- Where Do I Purchase My First Crypto?
So you have made up your mind about investing in cryptocurrencies, but you are yet to decide where to get the asset.
Investors can get cryptocurrencies from P2P exchangers, including family and friends, or an existing digital currency user.
While P2P exchangers have been adopted on several occasions, exchanges remain the fastest and the safest way to buy cryptocurrencies.
However, when using exchanges, there are specific criteria for selecting the best trading platform to avoid being scammed.
The criteria include checking whether the crypto exchange is licensed to operate in your location, its available deposit and withdrawal methods, as well as the platform’s security and customer service.
- How Do I Trade or Invest In Cryptocurrencies?
Although basic crypto trading, which involves placing buy and sell orders, may seem simple for newbies, these investors still need some level of crypto education before they can get started.
Cryptocurrency exchanges usually provide guides to help new investors get started with their trading journey.
However, the materials provided may not be enough as you may need to seek help from other platforms like YouTube to venture into more advanced trading.
At the moment, there are only a few persons who understand how crypto works, so you should be careful of who tries to educate you to prevent any sad future occurrence.
- Can You Follow Daily Market News & Analysis?
This question tends to understand your availability in following industry-related news.
If you are the type that does not fancy getting daily updates on your favorite crypto project, then you should opt for a medium or long term investment.
However, if you plan on being a day trader, you might consider sourcing trusted crypto news platforms that provide professional and unbiased news articles.
Thank goodness the crypto market has several news outlets that provide only blockchain and cryptocurrency news so that you can choose from the tons of available options.
Venturing into the crypto space should not be something to handle with kid gloves. The industry has a record of making lots of people rich and has also put the rich who refused to take advice in massive debt.
Going into the industry for the first time, you should ask yourself the right questions, especially those listed above, to help you succeed.