Cryptocurrency is still a fairly new concept, which means that it still a mysterious road to travel. After all, its closest equivalent, stocks, are still mysterious to the general public.
It’s a difficult area to navigate and can result in you losing a lot of money if you do it wrong. However, we have this handy guide here to help you research everything you need to know to ensure that you make the safest purchase.
Understand the difference
Although cryptocurrency might look like the same concept as stocks on the surface, they have a lot of important details that you need to remember to avoid getting burned.
For one thing, crypto has a much more volatile market, where they can live and die on something as simple as a Tweet. This is important because, unlike stocks, crypto thrives mainly on hype and therefore will simply die out with no energy.
Stocks are typically backed by a certain group of people, where the appeal and drawback of crypto is that anyone can make a cryptocurrency. It means unvetted and untrustworthy individuals can gain your money.
Another difference is that stocks are created for the dedicated purpose of investing in a company. They are a fundraising resource, where the improvement of the company will result in an improvement in stock. Whereas, cryptocurrency can serve many purposes, including using its blockchain technology for gaming and programing.
Research the coin
Forget the technical aspect initially and focus on the fundamentals of the coin. For example, if you are thinking of investing in Dogecoin, you should look into its team, the ambitions of the coin, their strengths and more.
When looking at the team, look into who is running the crypto. Your main aim is to trust them, so don’t ignore any red flags. Ask yourself if you trust their expertise or qualifications? Do they have a proven track record to point to? The team behind the coin has the power to steer the coin into success, or failure if they wish.
When you’ve decided you trust the team, look into what they intend to do with the coin. What is the initial purpose of the coin and what is their long-term vision? Their vision will tell you just how ambitious they are, and you are looking for ambition. Ambition means your coin will be around for a long time, with the intention of growing. If a coin isn’t going to be around for the next 5-10 years it isn’t an ambitious endeavour and is probably going to be dumped once they syphon what they can out of it.
Take a look at their pricing history to get an insight into their past behaviour. Look out for volatile value, and whether the coin recovered well from a big dip. This will be a good indicator on, should another big dip occur, whether or not you can regain your money in the long run.
You can find their overall vision in the coin’s accompanying white paper. Most cryptocurrencies have one, and any that don’t are a red flag. Other red flags to look out for within the paper are whether the crypto is aiming for something unrealistic, and, like any other professional document, whether it has spelling mistakes and typos. If they aren’t serious about the future of their coin, they won’t invest time and energy making it look professional.
Finally, through all this research, you should have gained an idea of the team and coin’s reputation. It is the simplest but most effective rule: don’t invest in someone with a bad reputation. Credibility is essential in this field, and we’re talking about money, even if it is digital, so you need to feel secure in who you trust.
Research the world
As mentioned above, crypto is a volatile marketplace, where events can have far more drastic effects on the currency than stocks would incur. Crypto has been known to plummet due to a single Tweet, and the wider world is still wary of it, leading to bans in certain countries. Even countries that have embraced it can cause trouble. China, for example, is rumored to be replacing their national currency with cryptocurrency, which is implemented first by making all crypto trading illegal.
Keep one eye on your newspaper business section, and the other on the world news section. Crypto is also a global currency so things happening on the other side of the world can affect your crypto.
Luckily, most crypto exchanges are good about keeping its users up to date with its coverage so that you can make an informed decision on what to buy and when to sell.
And, unlike stocks, crypto has invited a lot of lively conversation. Tactics and tips are often shared on forums and groups online. Follow a few groups on Facebook and read some subreddits of potential coins you are looking at to be sure you’re making the right choice. This is also the best way to avoid a scam like a pump and dump scheme, since users will quickly say if something seems out of order.
It will also allow you to ask questions and seek advice. Plus, users on Reddit tend to break down technical concepts until they are in an understandable format.