Cryptocurrencies were largely invisible for more than half a decade after the Bitcoin was first created by the elusive Satoshi, but interest in surged after their value suddenly skyrocketed in 2016. The spike which spawned crypto millionaires with their stories of overnight success, driving around in luxury cars, added to the allure of cryptocurrencies, triggering a digital gold rush. But the grim reality beyond the virtual glitter came to the fore this year, when major exchanges and currencies such as Teraa and FTT crashed, wiping off billions in investors' wealth.
But for those who insist on investing in the unregulated investment vehicle secured by blockchain tech, but are vulnerable to fluctuating markets, a cautious approach is advisable.
Only go for the known names
With more than 21 thousand cryptocurrencies popping up in an ecosystem where no one needs a central bank or authority to sanction creation of virtual coins, the first step is to be careful against scams and fake cryprocurrencies.
So the best bet is to go only for established cryptocurrencies, on which a considerable amount of data is available, instead of falling for the temptation to buy new ones at a lower cost, to cash in on a surge.
Data is of the essence
Stocks and bonds may not guarantee returns, but they are still backed with data on the companies which is publicly shared on a quarterly basis, highlighting their profits and potential, alongside the firm's history that lends credibility.
Cryptocurrencies can't be analysed because there isn't enough data, and a lack of transparency about assets backing the virtual coins doesn't help either. Which is why its advisable to have thorough knowledge about the history of the cryptocurrency, before investing in it.
Being a crypto nerd isn't a full time business
One should also know that rates of cryptocurrencies are simply driven by speculation among investors, instead of real factors such as profits, sales and growth potential based on expansion plans.
Hence the correct approach towards investing in cryptocurrencies if you must do so, is to not treat it as a serious long-term investment. If you have saved up some extra cash by not splurging on new year's eve celebrations or because you missed out on that holiday, maybe you can stash some of it in crypto assets. Entering when the cryptocurrency market is down could be a good step forward, but any sudden spike should also be taken as an opportunity to book profits and exit.
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