Are Cryptocurrencies A Safe Investment?

Since 2017, Bitcoin has been on the rise and showing no signs of slowing down. As millennials continue to invest in cryptocurrency, the interest in trading is hard to ignore. According to a survey conducted by Blockchain Capital, 30% of millennials between the ages of eighteen and thirty-four years old would rather invest in Bitcoin than in government stocks or bonds. In fact, Bitcoin has recently reached a record $600 billion in market value.

IBM, Toyota, and Microsoft have all invested in blockchain and as they consider the potential uses of cryptocurrency including smooth payments, driverless vehicles, and food safety. So what’s preventing the widespread of digital currency even further? Regulation or possibly the lack thereof. According to the SEC, there may be security flaws found in several cryptocurrencies without providing information on which ones. Meanwhile, China has outright banned the use of digital money and exchange.

While the variety of digital coins continues to grow, Bitcoin is gaining new competition with Ripple, Litecoin, and Ethereum as prices keep climbing. So, are cryptocurrencies a safe investment? Here’s what you should know.

Do Your Research

As you start to build your investment portfolio, you will need to do your research and ask a few questions before moving forward. Ask yourself these questions:

• Do they have a legit team?
• Can you open the code base of the company?
• Is there proof of beta or concept?

Answering these questions will ensure that you invest in a legitimate company in the cryptocurrency space. Be sure to review their presence online and verify their entire source code collection.

Watch the Bots

No matter where you turn, financial markets are prone to risks and cryptocurrency trades are no exception. As a result, there are individuals who use bots to artificially inflate the prices of digital coins and manipulate the market. When Neo, the Chinese alternative to Etherium dropped from $34 to approximately $3.74 within seconds, this resulted in a major crash for investors.

Spotting the trading bot can be difficult to do. You will need to watch over the market trading signals and train yourself to notice any abnormal patterns. The two major signs of bot manipulations are the volume and price momentum. As an investor, it is important for you to detect these patterns early on or use a trading analytics platform that will detect them for you.

Assign All Assets Based Your Levels of Risk

Before any attempt to invest in cryptocurrency, you should set a maximum level of loss to avoid financial collapses. This will be the level of loss when the trade will close when necessary. You will need to build your coin portfolio and manage your funds. The higher percentage should be placed with the least volatile coins and the smallest percent must go to the least stable, yet the highest potential of a return.

Keep in mind the price correlation between most Altcoins and Bitcoin should account for unstable market conditions. The best strategy is to watch for any signals and use those clues to adjust your daily trading strategy.

Understand the Risks

In 2017, $78 million dollars-worth of Bitcoin was stolen from Bitfinex, one of Hong Kong’s popular cryptocurrency exchanges. As a result, the currency dropped 20% in value. Just like any financial account you keep online, you will need to take care of your account credentials. Whether you secure your digital currency yourself or with a third party account like Coinfloor, the safest bet is to keep your security information offline.

Proceed With Caution

If you plan to buy cryptocurrency, prepare to invest only what you are able to lose without damage. The riskier the investment, the smaller amount you should consider investing in it. Not only is this the safest way to invest in Bitcoin and other digital currency, it is also a learning experience. Just be sure that you understand the aspects of how to buy, sell, and exchange digital exchange without losing your investment entirely.

Resist the Temptations to Overtrade and FOMO

The “Fear of Missing Out” is a common reason why inexperienced investors buy into the hyped coin and lose profits on others. Investors feel the need to purchase a certain coin when the price rises and end up resulting in poor assets. Another issue in financial safety is overtrading. This often occurs when you see a small spike in the price and immediately sell your coins. It could also be a temporary case where currency holders are encouraged to sell their coins before the price increases.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.