Why You Shouldn’t Put All Your Investments Into Cryptocurrency
“This 39-year old sold everything he had for Bitcoin: house, car and children’s toys—now he lives on a campsite waiting for the ultimate cryptoboom”. I haven’t made this sentence up just now, it’s a real title of the journal article. This guy has three kids—three!—and yet he sold everything and made a huge Bitcoin investment.
And now look at the date when this article was published. November 2017. The time when Bitcoin, as well as altcoins, was skyrocketing and it seemed that nothing is able to stop this mad ride. Yet, just a few months later Bitcoin has fallen to half a price and recently doesn’t show any signs of going up again. This poor guy is still waiting for the cryptoboom in the campsite.
You shouldn’t put all your investments into cryptocurrency because there is no guarantee that the price will go up. However, investment is a great way of making money without working every day from 9 to 5. Today we want to discuss how to properly invest in cryptocurrency and how you can minimize your risk.
Why cryptocurrencies are a popular investment
I could have written here, that it’s because cryptocurrency is decentralized, anonymous, immune to the inflation and many other wonderful things. But the true reason why investing in cryptocurrency has become so popular is the rapid growth in the price last year. Only a very small group of enthusiasts invests in cryptocurrency because they believe it is the future of the money. Most of us just want a quick profit.
All this crypto madness last year showed us that if it looks too good to be true, then most likely it is. Many people were sure that Bitcoin investments are a win-win: the price can’t go down, just up-up-up and to the Moon. Yet all those peoplewere proven otherwise.
But it doesn’t mean that cryptocurrency is a bubble and you don’t have to buy it. Cryptocurrency’s crazy going up was provoked by huge masses of people who started to chaotically buy coins. And, of course, when so many energy is flowing into the market, the outflow is natural. If so much money would be invested in any other asset, the result would be the same. The situation on the cryptocurrency market now is more normal than what was happening in 2017.
Why you need to diversify your assets
Diversifying is a basic and the most effective strategy of investment. With diversifying the portfolio you minimize risks and reduce the volatility. Of course, unless you are cursed, and all fifteen kinds of assets you invested in, are plummeting.
When diversifying your portfolio always remember that your risk level must be consistent with your financial strategy.
How to invest in cryptocurrency
Few simple rules how to invest in Bitcoin and altcoins:
- Don’t invest more than you can afford to lose
Set budget for your investing in cryptocurrency. Then even if you fail, it won’t hit your wallet much.
- Know the difference between the investing and trading
Investor buys and holds, trader buys and sells and repeat, profiting on small differences in rates. If you have invested in the coins that you believe have potential, don’t rush to sell them at the slightest falling. Have a strategy.
- Be careful when choosing a coin to invest
There are more scam projects than real ones on the market. Check this guide that explains how to detect fraudulent ICOs. The statistics are dreadful. Approximately 81% of ICOs turns out to be scams, 6% fail, 5% are dead-on-arrival and only 8% go on to trade on the exchanges.
- Don’t act under emotions
The Great Bitcoin Madness of 2017 must be a good lesson for us all. Even if everybody is sure the coin will skyrocket, even if it seems that there is no way back, just ahead, it doesn’t mean anything. Always analyze the situation, don’t believe everything crypto experts say. Your serendipity may be lying to you, trust only numbers and facts.
Why cryptocurrency is not enough
First—cryptocurrency is the most volatile asset ever, and you may fall asleep really excited that your Bitcoin investment will bring tomorrow even higher profits, and in the morning, after checking the rates, may be nervously drinking coffee and thinking what to do now, when the coin you invested all your savings in has dropped half a price.
Second—all altcoins are dependent on Bitcoin. Bitcoin is going up, they are going up, Bitcoin is falling, they are falling as well. And Bitcoin trend is unpredictable. You invest in promising coin, but as soon as Bitcoin price starts to plunge, your coin is going down too. Doesn’t matter how carefully you have chosen the coin and how hard the team is working on its development—it all is tied to Bitcoin.
However, Bitcoin is not the only asset you can invest in. People got so crazy about cryptocurrency that the have forgotten about other ways to invest. Here are just few examples of test-proven investments that don’t seem to lose ground:
Stocks represent a proportional share of ownership in a company. The price of the share fluctuates as the value of the company changes. Investing in stocks is one of the most profitable ways to build wealth over the long-term.
Mutual funds are professionally managed investments that pool your money with other investors. Fund’s managers then buy securities with the pooled money for the group. They are diversified which lessens the risk. Managers can buy stocks, bonds or any kind of asset they think will be profitable. You turn over the responsibility of managing your money to the professionals. But they also make mistakes, and the responsibility is on you.
A bond is a debt instrument. The purchaser of a bond is a creditor, while the government entity or a corporation that issued it is a debtor.
For example, some company needs to raise money. It issues 3-year 100 000 USD with 5%. That means the owner of the bond is paid 5% on their investment each year.
Natural resource investing covers everything that is mined or collected in a raw form (coal, lumber, corn etc.) The demand for precious metals, sources of energy and building materials doesn’t seem to decline. There are few ways to invest in natural resources:
- Direct purchases. Suitable when we talk about precious materials, but not applicable when you want to invest in natural gas or timber.
- Futures. You don’t have to store physical resources, you just own them according to contract. Such type of investment suits more to experienced traders.
- Stocks. You can buy natural resource company shares (mining stocks, oil exploration stocks, etc.) and take a share of its profit.
Making money through investment requires constant research and analysis. And even that doesn’t guarantee 100% success—you must always be ready to lose some of your money. It’s the game where once you stop, you lose.
Bitcoin investments are great, but putting all your hopes in cryptocurrency is irresponsible. It may be tempting to invest everything you have into “hot stock tip” but this mistake may cost too much. Diversify your portfolio with more “classic” assets, and investing will be much more rewarding.
If you have already invested in cryptocurrency, you must think about the protection of your coins. Of course, you may keep them in a hardware wallet, which is considered to be one of the most secure, but is at the same time difficult to manage. The secret of successful cryptocurrency investment is being able to react quickly on the market changes, and buy, sell or convert your coins instantly. All this is possible with Bonpay Wallet—secure and simple cryptocurrency wallet, where you can manage your Bitcoins just with one finger tap. Register now—and feel the freedom of using your cryptocurrency.
Disclaimer: Not financial advice, provided for educational purposes only.