Investors are always out looking for ventures that will earn them impressive returns. In modern times, there are multiple avenues to which you can channel your investments.
One of them is a cryptocurrency, a digital asset whose security measure is cryptography.
Throughout the year 2017, cryptocurrencies experienced a surge in market valuations, thereby attracting the attention of investors. The thing with these currencies is that unlike other legal tenders, they can be issued by any individual who has access to the right technology.
Therefore, tech entrepreneurs are usually working round the clock to launch coins that can be redeemed for products and services. However, while these coins are associated with huge potential, it does not mean that they are for everybody. Thus, if you are looking to invest in cryptocurrency, here are a few things that you need to know.
You Need to Have Some Technology Expertise
Unlike in college where you simply search for an essay writing service online when you need help with your assignments, investing in cryptocurrency actually requires you to have knowledge about the internet and technology.
Before buying and trading cryptocurrency, you need to be comfortable using some Smartphone application or a computer. Besides, you need to be extremely attentive to avoid losing your money.
A few important things to note are:
- Pay attention when typing in a cryptocurrency address.
For example, a Bitcoin address can contain up to 34 characters. Therefore, if you lose focus when typing it during transactions, your money could easily end up in a different person’s account.
- A mistake of sending cryptocurrency to the wrong address will make it disappear.
In addition, the process of recovering misplaced coins for small amounts could result in the loss of your earnings through hefty fees. For example, Bittrex charges a minimum $5,000 recovery fee.
- Start small.
All exchanges involving cryptocurrencies recommend doing a low test amount prior to transacting a large amount.
Cryptocurrencies are Highly Volatile
Volatility refers to the extent to which the price of an asset changes over time. Asset prices that aggressively fluctuate are an indication of high volatility.
The price of cryptocurrencies is extremely volatile because they are purely digital assets that are not backed by any physical commodities. Hence, their prices are entirely dependent on demand and supply shifts. In addition, the supply of these currencies is predictable and as such, their price depends on the number of people willing to purchase them.
Therefore, if you are an investor with a low tolerance for risk, you may want to avoid investing in these currencies.
Varying Transaction Wait Times
Another thing you need to know when investing in cryptocurrency is that their transaction wait times can vary depending on various factors including the volume of transactions. The wait time can range from a few minutes to a number of hours.
A long transaction wait time also means that you may not get the currencies at the price you had wished. You would be in luck if the price has gone up by the time the transaction clears.
Ever-changing Rules and Regulations
The increase in the number of people trading cryptocurrencies has pushed government agencies into creating laws that govern these transactions. Some of the laws passed in recent years include:
- The declaration of cryptocurrency as property by the IRS in 2014.
This law had an implication on the taxation of cryptocurrencies. The same tax principles you abide by when reporting the sale of a piece of land would apply to a transaction involving 10 bitcoins.
- The New York State Department of Financial Services in 2015 announced the BitLicense regulatory framework.
Through this regulation, Bitcoin companies operating in New York were required to keep comprehensive records of all users.
- The Hawaii Division of Financial Institutions in 2017 implemented regulatory policies.
These guidelines required the entities dealing with exchanges to hold cash reserves that are equal to the value of cryptocurrencies held by Hawaii residents.
Thus, you need to beware of prevailing regulations before diving into cryptocurrency investments.
The bottom line is that you can make a lot of money by investing in cryptocurrency. Imagine that you had purchased $100 bitcoins in January 2011; you would have amassed 333.33 coins. This investment would be worth over $1.4 million by the end of August 2017. Nevertheless, before embarking on this journey, you should understand the potential risks with which these currencies are involved. Be sure not to bet your house on cryptocurrencies given their inherent volatility.