The hype over cryptocurrency investing, such as in Bitcoin and its many peers, has died down considerably in recent years.
As of right now, however, cryptocurrency remains a work in progress when it comes to their viability as currency or as an investment.
Yet cryptocurrency investing likely is here to stay. Certainly, experts expect a cashless society of the future.
Here are five mistakes new investors make buying cryptocurrency.
Do you understand what cryptocurrency is?
A cryptocurrency is a virtual currency that is digital, non-tangible, encrypted, and exchanged online.
Cryptocurrencies are entirely decentralized and not regulated by any central bank or country. Anyone with a computer can make cryptocurrencies online on a blockchain.
On the plus side, cryptocurrencies are essentially impossible to double-spend or counterfeit.
However, depending on who you ask, everyone has a different opinion of what cryptocurrency actually is. The IRS considers cryptocurrencies to be “digital assets,” or “property,” but not currency.
If you aren’t willing to exhaustively research cryptocurrency and the crypto market, you shouldn’t invest in them.
It’s easy to accidentally lose crypto permanently
There are several ways you store your cryptocurrencies. You could store them in a “hot wallet,” or an online account in an online crypto exchange.
Or you could save them in a “cold wallet,” which is on a USB drive or computer that is not connected to the internet.
You need a key, or password, to access your crypto. Depending on the storage method you use, you could be locked out of your money forever.
Some cryptocurrecy storage systems will give you several password guesses before locking you from your crypto permanently.
Over $140 billion worth of cryptocurrencies has been lost permanently in recent years due to lost passwords.
Do you know which crypto to invest in?
If you have ever invested in Forex, then you understand that you can invest in various currencies according to current exchange rates. And you can only invest in legal and regulated traditional currencies.
Which cryptocurrency would you invest in? And why?
There are over 22,000 cryptocurrencies in existence and counting. New ones are created daily.
The crypto market is extremely volatile
The traditional fiat currency financial market of the world can be intuited and followed in a way to project what may happen next. Yes, traditional investments can be volatile, but the investment terms “bear market” and “bull market” exists for a reason.
If you understand the traditional finance market, you can manage the volatility of the market.
Most people don’t understand what cryptocurrency is, never mind the fact that the crypto market is inherently volatile. The market can be easily manipulated by speculators or scammers, and the industry is unregulated, so it is always volatile.
You could do everything right and still lose everything
Several popular crypto exchanges have made headlines for fraudulently stealing or mismanaging billions from their customers. Investors have collectively lost trillions.
And there have been numerous reports of cyber-thieves stealing crypto from online exchanges over the years.
You could do everything right by storing your crypto in an online exchange and still lose it all when the CEO of a crypto exchange is outed as negligent or a crook.