No other investment option has gained as much centre stage in recent times as cryptocurrency has. Not only has it seen many (rather unexpected?) surges and drops in recent times, it has also gained notoriety for being under the regulatory lens of central banks across the world. So, if you are planning to jump the bandwagon, here are a few things to keep in mind while investing.
Volatility: Price swings are incredibly common in the cryptocurrency space, also among the biggest coins (think blue chip stocks!) like Bitcoin and Ether. This is counter-intuitive from investing in shares, since you do not expect blue chip stocks to swing too much in normal times. Given that cryptos are unregulated, there may be multiple reasons for the swings. This kind of variability is unlikely to disappear in the absence of a structured (read regulated!) framework. But guidelines and control are counter-intuitive to the core of the cryptocurrency, born from the desire for a deregulated currency, right?
Safety and Security: The unregulated nature of cryptocurrencies implies that investors need to take additional precautions while investing. Identifying a dependable and reliable cryptocurrency is an important first step. A good place to start may be the wallets which are linked to exchanges, permitting you to store and exchange your cryptocurrency assets. Also, invest only as much as you are willing to lose in the times to come. More importantly, think long term!
Market Trends and Investor Perception: Unlike the traditional financial instruments and stocks, cryptocurrencies tend to fluctuate based on large-scale patterns and public perception. Market cap and performance data are very useful for the selection of stocks for investments. These are, however, not so significant in case of coins. Cryptocurrency investors need to be aware of stories twirling around a specific digital currency and need to read about the trends.
Beware of the Bubble: Many financial investors and experts feel that the cryptocurrency space is a bubble. Prices have grown (and fallen) at a colossal rate, and these investors believe that the industry is not sustainable over the long term. But that is a risk which many are willing to take. To each his own! Savvy ‘risk-taking’ investors are aware of this possibility and are making ‘informed’ choices. Also, the age-old adage ‘do not put all eggs in one basket’ will always hold you in good stead, especially when it comes to investments. Go, savour the cuisine that suits your appetite!
The author is the CEO of Fincare Small Finance Bank