With Bitcoin peaking in value at almost $20,000 in January 2018, the economic stratosphere seems to be in a frenzy with the cryptocurrency hype. Players like Ethereum along with Bitcoin have been making rapid gains in the last couple of years with more than 100,000 businesses adopting it into their operational network. This includes big names like Microsoft, Dell, and Overstock.com. Before you dive into the “blockchain party” regardless of whether you’re an individual or a business entity, there are certain aspects you need to get a foothold of before investing in cryptocurrency.
First of all, what exactly is a cryptocurrency? How does it operate? Well, cutting through the smorgasbord of boring technological interpretations, Bitcoin along with other cryptocurrencies, is basically a purely digital version of money that enables you to execute a direct financial transaction from entity to entity without any “handlers” such as banks, agents, or credit companies standing in between. The digital currency runs on blockchain technology, a powerful encryption system that protects the currency from being manipulated or replicated in any way. What it all translates to theoretically is a quicker, easier, and much cheaper way to exchange money from anywhere in the world.
What makes the system so lucrative compared to the conventional finance systems is that you have no governing body standing between you and your transactions and therefore no hefty transaction charges.
The hype around these cryptocurrencies is hard to dismiss and it’s easy to get sucked into the whirlpool of people making heavy investments in Bitcoin and other cryptocurrencies. However, as a business, here’s a lowdown on some crucial factors that you would need to consider before you put your chips on the table.
Cryptocurrencies are pretty much in circulation all around the world with just a handful of countries imposing an outright ban on it. That being said, most countries don’t have a solid set of legislation for cryptocurrencies. The laws formulated around Bitcoin and similar currencies are kind of foggy and subject to change every now and then. It’s going to take some time for the governments of different countries to reach some kind of consensus about cryptocurrency. Until that happens, it’s always going to be more or less a gamble investing in cryptocurrency. Before you make an investment, just be clear of how the legislation leans with regards to cryptocurrency in your country.
In talking with a number of financial analysts and Bitcoin “specialists,” one thing that everyone agrees on is the fact that the mercurial rise in the value of cryptocurrency is to a large extent just speculation. For any financial system to establish itself and gain credibility, it has to stand the test of time. In the current scenario, cryptocurrencies have not been in the market for enough time to be deemed a stable currency. Due to the fact that there is actually no historical precedent for this kind of currency, no one can actually predict which way cryptocurrencies are going to go. The rapid fluctuations also make it really dangerous to put a price on items with cryptocurrencies.
To put it simply, if you are planning on investing into this novel enterprise, consider it as a form of speculation rather than an investment. There really is no two ways about the fact that cryptocurrencies or some version of it is the way of the future when it comes to conducting commerce.
Having said that, right now, there is no way to predict how and when that future is going to present itself. So at this point, you’re not getting something that has any kind of sustainable value. It is true that quite a lot of businesses have already started accepting cryptocurrencies and their numbers are definitely growing, however, it’s not yet significant enough for its demand to be designed around mainstream trading.
If it’s an outright investment that’s in your mind, you are looking at trying to spend it or keep it in for at least twenty or more years until you reach the point where cryptocurrencies are ubiquitous.
First of all, there are several cryptocurrency exchange centers around; however, exchanging Bitcoins for cash is not really cheap, and it can actually take a lot of time. In the current scenario where volatility is the primary characteristic of these currencies you would end up losing a great deal of money unless you get a fixed-rate deal. Not all localities would facilitate the exchange of Bitcoins. In the situation where you approach a bank, the high transaction fees would still be something you would have to face.
Instances of financial fraud online are increasing with every passing day. Cryptocurrency is designed to be safer and tougher to manipulate; however, that doesn’t mean you are completely insulated from fraud. There are plenty of people out there who find stealing cryptocurrency from somebody else much more worthwhile than investing in it. If your wallet doesn’t have the required security protocols, you risk losing your investment to somebody smarter than you.
Use exchanges that have a good reputation backing them up. Make sure you use tough-to-crack passwords. Always utilize two-factor authentication as much as you can. Be extremely cautious about what you download. Avoid opening attachments from unknown sources. Being a little paranoid in your online transactions is a good idea.
You can easily make out a bad trader by a lack of resolve during market drops. They tend to buy only when the market is on the upside and go on an emergency selling drive when the market drops. This is not necessarily the optimal strategy to survive in the cryptocurrency market. The best strategy would be to consider your investment as a “measured loss.” This will keep you in a disposition that is appropriate to face sharp drops during cryptocurrency trading. You need to be quick to respond to sudden negative events that cause the price to fall.
Overall, these are early days in the cryptocurrency trade. You really can’t make out a foolproof plan that will ensure you solid gains through investing in cryptocurrencies. The key factor is to be ready to play for the long haul. Take your time to analyze the events and keep your investments measured for the time being.
Mohit Tater is the founder and CEO of BlackBook Investments through which he helps people invest in online businesses and digital assets. Apart from advising clients on SEO and marketing he also blogs at mohittater.com.