I have a strong passion for cryptocurrency and investments. I have over 3 years worth of experience in it. I am not a financial advisor.
Cryptocurrency is gaining popularity due to its decentralised nature. This means there is no single entity which is fully in control of the cryptocurrency. Another great benefit of cryptocurrency is the anonymity of transactions.
No one will ever know who made that transfer or who that wallet belongs to because wallets are not tagged to a person.
The complete anonymity is what makes cryptocurrency extremely popular at the moment. However, of course it brings about some other convenience when it comes to the underworld.
For first timers though, here are some pointers to take note before investing your whole fortune into cryptocurrency.
Currency or Investment?
Truth be told, there is no right or wrong answer. It is entirely up to the individual how they wish to make use of the cryptocurrency.
Because of the recent hype around cryptocurrency, we are seeing many more investors onboard. People are holding the coins in the hopes that one day it will 10x, 100x or even 1000x.
Sure, sometimes this may happen, however do not be fully emotionally attached to this.
Here’s what I mean. The thing to take note with all cryptocurrencies is that they are highly volatile. Meaning they can change values drastically. For example, today Bitcoin is worth $50,000. In a few hours later, it can be worth $30,000.
It is because of this high volatility that I do not recommend investors to be emotionally invested into it. Once you are, you will start making more and more drastic mistakes.
Expectations vs Reality
When investors first start investing in cryptocurrency, they have a common misconception. There are investors out there who think that cryptocurrency is an easy way to get rich. To get their first million dollars.
Well this is where I will have to bring you back down to reality. Investing in cryptocurrency is like investing in stocks. There are no guarantees on making money through cryptocurrency.
It is always best to only invest money which you do not mind losing. I’m pretty sure you have heard of stories where investors invest their entire fortune into cryptocurrency during the ATH of Bitcoin back in 2017.
Well, after that bull run the prices started tanking and most of such investors sold at a loss. Hence there are plenty of jokes around which references buying high and selling low.
So, unless you want to join those few who buys high and sells low, I would strongly advised against you thinking that cryptocurrency is a 100% guaranteed asset that can make you rich overnight.
I’ve seen this quite a number of times. People investing into crypto not knowing when to exit. You may be wondering, what do I mean by not knowing when to exit?
Well, you see, when you enter into cryptocurrency investment, it is wise to have an exit strategy. At what price should you sell off some of your coins or all of it. Due to the ever volatile nature of cryptocurrencies, you will never know when the price of that coin will be at it all time high.
Instead of waiting endlessly for the price to be extremely high, we make a plan on when we intend to exit. For instance, our exit plan for Bitcoin is at $50,000. The moment Bitcoin hits $50,000 we sell off all our Bitcoins.
This is to prevent any FOMO (Fear Of Missing Out), FUD (Fear, Uncertainty, Doubt) or similar situations. With an exit strategy in mind, you can rest assured knowing you made the right call to sell off at that price.
To HODL is to basically not sell the coins and to just hold on to it. This is not wrong but for how long do you intend to HODL it? Until the prices crash again? This is why having an exit strategy is extremely important. You need to know at which price you are comfortable to sell off your cryptocurrencies.
Just a gentle reminder, don’t be that guy who buys high and sell low…
Having said all that, what are your thoughts? Do you have unrealistic expectations of cryptocurrencies?
If you do, then I will strongly advise you to treat cryptocurrencies as stocks where instead of stocks, you get coins. Theoretically, both requires similar approaches in order to prevent huge losses.
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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2021 Muhammad Shairazi