How (Not) to Invest in Cryptocurrencies (the Basics)

8개월 전

The hype around cryptocurrencies has increased in recent years, with 2020 seeing countries put policies in place to regulate the technology.

This hype also led to an increase in crypto investments. This increase, in turn, has led to a loss in funds in many cases. Aside from this affecting the economy, it also leaves some ignorant people in a state of perpetual distrust when it comes to cryptocurrencies.

The second result is the main reason I am writing this.


Stories of how Bitcoin and other altcoins made many people very wealthy lead others to believe that cryptocurrencies can make anyone a millionaire. That fallacy has put many people in trouble.

I will be sharing five (5) basic points to help you invest as safely as possible. If you read between the lines, you’ll also squeeze out other tips.

Understand your Motive: The reason for investing informs the steps, the patience, and the path one will take in their investment journey. Some invest in cryptocurrency because they want to be a part of the emerging technology. Others do so because they want to support the financial freedom that comes with decentralization and digital currency, and many others invest as protection against the inflation of fiat currencies.

The abovementioned may be good reasons to invest, but there is one undoubtedly wrong reason to invest in cryptocurrencies, and that is the fear of missing out (FOMO).

Many people see cryptocurrency as a goldmine, and they get blinded to the basics about financial investments.

So, first things first, check the motive. If they aim to get rich quick, there might be loss instead of gain.

Bitcoin is King, but others are Royalties too: Bitcoin remains the undisputed king of digital currencies and should be considered a top choice when investing in crypto. This is because, acting as a store of value, bitcoin is an excellent hedge against inflationary fiat. While everyone’s crypto portfolio should include BTC, it is smart to diversify by exploring other sound crypto assets.

However, choosing other crypto assets demands that one does their homework to enable them to make wise choices.

Do the Homework: Picking an alternate coin to invest in should not be done randomly. Instead, should:

  • Check the token supply, circulating tokens, trading volume, and market cap on or the exchange where they are listed (If they are already listed). Market caps give an idea of the value of the project, token supply tells you how many coins make up the market cap, and the circulating supply tells you how many coins exist today. The trade volume will let you know if you can easily buy and sell the tokens when you want, without pushing the price up or down.

  • Study the Whitepaper. The whitepaper reveals a lot about a token. It gives insight into the plans of the team. It tells if they have a worthwhile project backing the coin and if the project brings value and serves a purpose. Whitepapers show if the token has usefulness or is just another way to make money for the team. Reading the whitepaper takes perseverance, but it is necessary to know what one is getting into. This rule is mainly applicable when dealing with initial coin offerings (ICOs).

  • Check out the Team: In this, Google is your friend. Are they anonymous or public? Learn the personal history of each member of the team. Do they know what they are talking about? Have they led something worthwhile in the past? Can they be trusted? What do other experts think about them? Asking and getting answers to these questions will help paint a clearer picture of the investment, and helps you get into the brains behind what you want to invest in. So you know if there is an excellent chance of it turning out to be a good investment. Talking about chances...

Take Calculated Risks: This is about the most crucial point for all investments, but it is more so in crypto investments, thanks to the volatility involved. Aside from the volatility of the prices, the different, uncertain policies, put up by countries, concerning crypto makes it a little riskier than the traditional financial investments. So, invest what you can afford to lose; don’t invest your life savings.

Avoid Pyramid Schemes or Multi-level Marketing Packages: Many people in Nigeria have fallen for these schemes. Someone always loses at the end, and it could be you who doesn’t know much about it. If you are not buying from exchanges and holding, you may offer services like data gathering services or freelancing and get paid in crypto, or create content and get curation benefits or the likes. But don’t be caught dead in crypto pyramid schemes. It never ends well, and it is a primary reason some people in Nigeria frown at the mere mention of cryptocurrency or bitcoin.

In conclusion, the points to note before investing in cryptocurrencies are age-old tips which apply to other financial investment; know what you are investing in, invest what you can afford to lose, and watch your investment keenly.

Do these, and you have a high chance of doing well with cryptocurrency investments.

Post first shared on Voice for Cryptowriter.

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