Is there any aspect of finance that has courted as much controversy, rumor and downright misinformation as cryptocurrency? Speak to one person and they will assure you it is a surefire path to millions, while another will be equally convinced that a dollar invested in Bitcoin is a dollar flushed forever down the can.
Clearly, the truth lies somewhere between these polar opposites. As with any form of investment, it is possible to find some people who have made a packet and others who have lost their shirt. Perhaps, instead of arguing over who is right, a more productive angle of enquiry would be to establish what those in the former category do that those in the latter do not, and vice versa.
With this in mind, here are some guiding principles for squaring up with the cryptocurrency market and coming away without a bloody nose.
Do Your Homework
Look before you leap. Fools rush in where angels fear to tread. Marry in haste, repent at leisure. There are probably a dozen similar clichés you can think of. Here’s the thing, though. With any form of speculation, whether it is investing in the stock market or backing a horse in the Kentucky Derby, the more you know about the company, the economy, the horse or the racing conditions, the more likely you are to come out with a profit. It’s not rocket science, yet the fact that it is so easy to buy Bitcoin at the click of a mouse leads many to overlook this simple rule.
There are probably more blogs out there about cryptocurrency than there are on any other topic. Drink in as much information as you can. A key characteristic of Bitcoin is that it often tracks counter to other investment types, and while its fluctuations are legendary, they are seldom contingent on the macroeconomic factors that cause shifts in Forex and the stock market. Understanding those drivers is the most important ingredient in finding success.
Stay Abreast of the Technology
Understanding the market drivers is one thing, but what makes cryptocurrency so unique is that its value is as contingent on technological factors as economic ones. Bitcoin is by far the best-known cryptocurrency, but it is certainly not the only one. Vitalik Buterin’s Ethereum is another cryptocurrency that is seldom out of the news, and the fact that it is mined completely differently could have a fundamental impact on how the two currencies will evolve.
This time last year, all the talk was on the flippening, the much-anticipated moment when Ethereum’s market cap would exceed that of Bitcoin. Right now, that seems hugely unlikely, but it only goes to show what a difference a year makes. At the same time, new cryptocurrencies like Iota, which is based on entirely different technology, are entering the fray.
Protect Your Coins
Blockchain is fundamentally secure, far more so than many online transactions. However, your bitcoins are only ever going to be as safe as the wallet in which you store them. It is possible to use an offline, or “cold” wallet, similar to a USB drive, and if you are a multi-millionaire or an international super-villain, then there are advantages to keeping your digital wealth offline.
For the rest of us, however, the reality is that you are more likely to have a cold wallet lost, stolen or dropped into a cup of coffee by an enterprising two-year-old than you are to experience problems with an online wallet. Usual common sense rules apply here – choose an established provider that has been around for a while and that clearly prioritizes security above all else.
