Follow 4 things before trading in cryptocurrency: If you travel from one country to another, what is the first thing you do? Probably visiting a bank and exchanging the currency for the domestic or local currency.
Similarly investing in cryptocurrency works the same as exchanging the currency with the local currency of the country. A few examples of these cryptocurrencies are Ether, Bitcoin, and Litecoin which operate within a particular context within specific online communities. Exchanging for any currency depends on the worth or value of it as a whole. The value of euros or dollars is just because people know that they can buy services and goods with them.
The biggest question is, can a trader trust cryptocurrency? And should he start investing in it?
What is Cryptocurrency:
It is a virtual or digital token that people use as a medium of investment and for buying online. One exchanges the regular currency such as dollars or euros to buy “tokens” or “coins” of a particular cryptocurrency. There are many types of it, but the most popular among them are Bitcoin Cash, Bitcoin, Litecoin, Ripple and Ether, and a few others. All kinds of big financial and technical firms want a part of crypto. Even Facebook has launched its cryptocurrency with the name Libra.
The word cryptography refers to the art of solving and writing codes. Every coin has a unique code associated with it; this is the reason why one cannot duplicate the cryptocurrency. This code makes it possible to identify and track during a trade.
Cryptocurrency is compared with the modern-day gold rush because the trader earns hundreds and thousands of dollars while trading in it. The history of cryptocurrencies is not long back; it has been just ten years. The first crypto (Bitcoin) was launched in the year 2009 by an anonymous person known by the name Satoshi Nakamoto.
Four Essential Points To Know Before Cryptocurrency Trading
Before leaving the traditional dollars and buying new Ether or Bitcoin, there are a few necessary things you need to note down:
1. The Volatility of Cryptocurrencies
The value or price of these currencies fluctuates significantly between ups and downs. For example, the cost of Bitcoin in 2017 oscillated between $900 and $20,000. Within a short duration, the price suddenly dropped.
Thus, investing in cryptocurrency is somewhat risky. However, the degree of risk can be managed, but still, one needs to be very cautious before investing the hard-earned money in this market.
2. Many Unknown Traders In The Market
There are still a lot of issues you need to find out in this market, this is among one.
Think once that no one knows the founder of Bitcoin yet. Thus, only a small percentage of traders in the global world knows exactly how to trade it and the actual transaction operation associated with it.
Ignorance exposes you to risk, that’s why it is advised to practice a trade and build fundamentals before heading towards something which you don’t know at all.
3. Use of Cryptocurrency In Fraudulent Activities
Traders who want to avoid regulation imposed by the government or banks and who wish to remain anonymous will make investments in this market. They do so to pursue shady deals in the black market. Thus, money laundering is a significant problem with the crypto market.
The explanation above doesn’t mean that only bad traders use cryptocurrency; it is just that the trader who wishes to carry out criminal activities without being caught considers it as an ideal place.
4. The Unproven Rate of Return Associated With Cryptocurrency
Trading in this market is similar to gambling. It is because it is exchanged between peer to peer without any link to regulatory measures. There is no fixed pattern for the fall and rise of its value. One can’t calculate returns and predict changes like in the case of the growth of share mutual funds.
There is no proper data and enough credibility to make a long-term investing plan based on cryptocurrency.
Should One Invest In Cryptocurrency?
It is the best platform for a trader if he wishes to expand his wealth. Many traders have become a millionaire by investing in the crypto market. But read once all the precautionary measures while investing your money. Wealth is what you earn through hard work, and it matters a lot if you play poker with your monetary future. So, go ahead but with care.
The Bottom Line
Your initial smart investment and risk handling strategy decide your profit. Follow Primefin.com for the guide on risk management strategies along with the basics of cryptocurrency investment.