Whereas cryptocurrencies were once a niche commodity that was only understood and traded in by industry specialists, they’re becoming more and more mainstream by the day.
This has precipitated a flood of amateur investors looking into the sector to determine whether they, too, can walk away with a piece of the lucrative cryptocurrency pie.
Does that sound familiar to you? If so, the first step is educating yourself on how the technology works and where you can become involved.
Thankfully, you can find all your crypto questions answered on this page, which will give you a good grounding of the industry to work from.
But once you’ve got the basics under your belt, there are a few important considerations you should remember when it comes to opening your chequebook and investing in cryptocurrencies.
They Are Volatile
If you have any experience in forex trading, you’ll be well aware that fiat currencies can change in value at the drop of the hat.
Indeed, it’s this volatility upon which the entire industry is predicated since buyers can purchase currency at a low price and sell it on when it increases.
When it comes to crypto, those fluctuations occur on a whole different level. Indeed, one recent analysis of Bitcoin – one of the foremost cryptocurrencies on the market – revealed that it changed in price by an average of 2.67% on a daily basis.
Compare that to the pound, the euro, or the yen (all three of which witnessed fluctuations of 0.4% or less) and you’ll see just how unstable cryptocurrencies can be.
Diversification Is Key
Due to the very fact that cryptos are so subject to change, it’s more important than ever not to put all your eggs in a single basket. Of course, that’s invariably the case when it comes to managing an investment portfolio, but the extreme volatility of cryptocurrencies means that diversification is an absolute must when dealing with them.
That should mean spreading your investments across several different currencies and tokens to ensure you are not left completely out of pocket should one fail.
However, it also means investing in other financially viable opportunities as well, such as stocks, shares, or assets, like property, art, or gold. Remember: only invest what you can afford to lose – and only invest a fraction of that figure in a single cryptocurrency.
There Are Different Ways to Store Them
Although cryptocurrency exchanges do offer storage facilities for your assets on their platform, it’s a good idea to set up an external wallet.
That’s because those services have been designed with convenience rather than security in mind, meaning that if the platform becomes compromised by a cyber-attack, you could lose all of your wealth stored on it.
Instead, you should decide whether you’d prefer to place your cryptocurrency in a “hot” or “cold” wallet. While those terms might sound confusing, they basically refer to one which is housed online and one which is disconnected from the internet, respectively.
The former is handy for storing funds which you expect to spend, exchange or transfer, while the latter is more secure for any assets you plan to hang onto for a longer period of time in order to let their value accumulate.
Investing in cryptocurrency can be an exciting and potentially lucrative method of making your money work for you – but it’s important to remember these basic tenets when managing your portfolio.