3 Things to Know Before Investing in Cryptocurrencies

As one of the most famous businessmen and investors in the world, the words of Warren Buffet rightly carry a lot of weight. So when the great man says, “Never invest in a business you cannot understand,” it surely pays dividends to listen.

That’s true for all investments, but it’s especially pertinent when it comes to new and innovative markets like cryptocurrencies. While there are certainly significant sums of cash to be made from smart trading practices, the highly volatile nature of crypto means that it’s especially important to do your research before diving headlong into the industry. So what three things do you definitely need to know? Here’s a brief guide.

How it all works

Perhaps the most basic requirement of any prospective investor in the sector is understanding how crypto works on both a practical and a technical level. The blockchain technology which underpins all cryptocurrencies might be difficult to get your head around, but it’s also what makes the sector so secure, so anonymous, so transparent – and so different from fiat currencies.

Instead of going through the middlemen of banks and other financial institutions, every transaction is simply stored in an online ledger. This safeguards the autonomy and identity of those involved, while still ensuring that funds can never simply disappear without trace. Of course, it’s a tall order to explain such a complex concept in a sentence or two, so it’s worthwhile doing your own research on the subject before investing.

Learn the market

While bitcoin might be the first and most famous cryptocurrency in the market, it’s certainly not the only horse in the race. Indeed, the enormous energy demands associated with the flagship crypto mean that it has already fallen afoul of environmental campaigners and influential entrepreneurs like Elon Musk, who slashed its value earlier this year with just a single tweet.

Indeed, concerns over sustainability and climate change are now increasingly mainstream, which is why there are a whole host of cryptocurrencies springing up which make it their business to address this issue. Of course, bitcoin is still the pack leader for now, but it makes sense to learn about the different options available to you and tailor your decisions based upon the market activity and your own personal principles.

Invest within your means

In many professions, the most valuable lessons are learned on the job. Investment is no different – it’s just that the risks involved are significantly higher, since you can lose your entire wage in the blink of an eye.

With that in mind, it’s a good idea to start out small, trading only small sums and familiarizing yourself with the crypto landscape. Once you have begun to get a feel for how the industry works, you can upgrade to larger amounts and start earning the serious money. Having said that, it’s always, always, always advisable to only ever invest what you can afford to lose, since the bottom can drop out of markets quicker than they drop out of hats. Stay within your means and you’ll not go far wrong.

Investing in cryptocurrencies is a potentially lucrative endeavor, but it’s absolutely crucial you learn as much as you can about the industry before taking the plunge.

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Rene Peters
Rene Peters

Rene Peters is editor-in-chief of CaptainAltcoin and is responsible for editorial planning and business development. After his training as an accountant, he studied diplomacy and economics and held various positions in one of the management consultancies and in couple of digital marketing agencies. He is particularly interested in the long-term implications of blockchain technology for politics, society and the economy.

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