Initially written for a now-defunct cryptocurrency media website.
2009 was a hectic time.
Ever since the GFC (that’s the Global Financial Crisis, for those of you who don’t know), the market crashes, volatile prices and their effect on our lives made us scared to trust the financial world. The biggest banks had major control of the financial space at the time. In a nutshell, the GFC broke our trust with money.
People have become wary of whether or not banks are answering the simple question: are they here to serve us or themselves? This worry ended up bleeding over to other parts of our lifestyle: how we view cryptocurrencies and Bitcoin as another fad, or some sort of scheme.
Why haven’t you, though? Is it because of fear? Is it because you know too little? Or is it because of something else? Let’s explore the first two points, and maybe you can figure out an answer for the third. Starting with:
Your Risk Adversity
What do you fear?
This is one of the biggest factors to consider when putting your money’s worth into any cryptocurrency: What you are scared to lose, and the unknown.
There are a ton of unknowns that most people are aware of, which highlights the scale of risks involved. It could be the coin’s roadmap, or shifts in macro-economic factors. It could be a Twitter battle between 2 influencers, which can put people off from the coin. The scale is so large and unknown, that as a beginner in the Crypto world, you wouldn’t know what to do or who to seek advice from.
If you are the only person in your family that is investing into Bitcoin, Ethereum or other digital currencies, you won’t be able to ask them for advice. Most financial planners are specialised in the stock market or shares, but not cryptocurrency. What about security? How do you know if this ICO is not a fraud? Are you keeping your coins online or offline? Are the exchanges you are participating in trustworthy?
These are risk examples, and they are amplified: Blockchain had only been recently implemented, so we can’t make inferences from past data. You have close to nothing to refer to except your own decisions to make. This is slowly turning around though, as leaders in the Blockchain space are picking up in terms of their reputation. These leaders, or influencers we may call them, share their investing experiences and failures and do so willingly. We can learn from them. We can learn how to tackle the risks involved.
It’s a positive change, sure. With a quick Google search, you can easily find a link to the top 100 influencers on Blockchain and investing in cryptocurrencies and trading now. Some can outline the risks for you. Some can provide tips. The greatest thing is: most (if not all) information is free online for you to digest.
We need to start somewhere after all. Which brings us to my next point:
Your Lack of knowledge
Where do I start? Who is good to learn from? Where do I trade?
To what extent does social sentiment play a part in your financial decisions? What about technical analysis? Do you make inferences from past prices? What is considered ‘enough’ analysis?
These questions need to be addressed as soon as possible: you are investing and there are risks involved. If you fear that your lack of knowledge is stopping you from investing, there are a few ways to handle this:
- Become knowledgeable. Read up on different sources. Find out what books do influencers recommend. Do they have a Youtube Channel explaining everything? A cryptocurrency podcast? Information comes in all shapes and sizes, make the most of them.
- Accept that your limited knowledge you have is enough to start. You will never know it all. That statement isn’t meant to discourage you, but it’s to help you realize that no one can predict the markets 100% of the time. People invest their money into cryptocurrency knowing full well that they can lose it all. It is the same as stocks and FX trading. Once you realize only require a little understanding of the blockchain movement is needed to put even $10 into it, it becomes easier to hold some Bitcoin from your end. It doesn’t bite.
- Invest with lower capital. Would you lose your mind over $100? What about $50? $20? $10? $5? The minimal entry point for Bitcoin is very low – setting aside spare change from the week can set you up for a very minimal investment for the
- Mitigate your risks. Like other financial schemes, investing into cryptocurrency can lead to potential losses. Don’t put all your fortune into cryptocurrency knowing you can lose it just like that. This isn’t just financial advice, it’s common-sense advice. Ensure that there are no dependents on the amount of capital you are putting into Bitcoin for example.
Speaking of risks…
More Knowledge Equals More Known Risks
Which is better: Going in blind, or going in knowing the risks?
The risks are still there, but being aware of them can help you make better decisions according to your profile. By profile, I mean how risky of a person you are.
You can always start with making your own Due Diligence guide! Information is King in the Bitcoin space, and ensuring that your due diligence efforts are superb gives you an advantage over others.
In the cryptocurrency space, all forms of due diligence aim to predict whether or not the coin in interest will rise or fall. It’s good practice to do this before you dedicate capital to the aforementioned coin. As an example, you can start off with the following:
- Due diligence on the team – Who’s running the business? Are they experienced in blockchain technology? Do they have a vast network, or are they backed by reputable advisors? Finding some good names on the team page can put the investor at ease, as it makes them look like they know what they’re doing.
- Due diligence on the roadmap and white paper – If you were to invest in an ICO, what will they do with all the capital? What are their plans for the next few years? Is it mostly just marketing? What are their predictions? Roadmaps are guidelines to indicate to the investor in what direction is the team going to. If the direction they are going is in alignment with what you are interested in, then all is well.
- Due diligence on their marketing efforts – Are they always coming up in your feed? Do they have a large presence in your country? Coins that are highly popular in Europe but not so in Asia may have different reasons why that is so. It could be that they are focusing on getting regional investments. Another could be regulations that prevent them from penetrating another region. Do you think they can sustain a global marketing effort? Do you prefer if they focus on a few key countries before proceeding?
- Due diligence on their social media – assuming that you are interested in a coin, you would be following their social media. Not only the social media of the coins, but the founders themselves:where are they now, which convention will they be in, etc.
- Keeping up to date with macro-level events – New regulations in one country? How much of an extent will that affect the coin you are interested in, is another aspect to consider. Whether it be new policies set by an uninformed President, or the closing down of a cryptocurrency exchange, these can affect a coin’s progress in some way. One of the biggest factors would be Bitcoin’s price – as it rises, so does the rest of the coins. This is just an observation though.
Protect your risky ventures with more knowledge. More time to learn, more time to earn.
What coins are you interested in? How do you decide before investing into one? Comment below!