5 things you must know before investing in Cryptocurrencies

Cryptocurrencies have become the talk of the town. While some are firmly convinced of investing in currencies such as Bitcoin or Ether, others still shy away from the world of cryptocurrencies. However, investors are increasingly getting their hands on Defi crypto and sense their chance to make big profits.

While these digital currencies are currently traded as one of the best alternative forms of investment, they are still based on rather new technologies. It takes a lot of know-how to make profitable investments in crypto. Therefore, before investing in cryptocurrencies, you should study the subject in detail.

Cryptocurrencies have upsides, downsides and distinctive aspects, some of which we would like to explain to you in the following article.

1. Cryptocurrencies are a speculative form of investment

Before investing in Bitcoin, Ether or Ripple, you should always keep in mind that cryptocurrencies are still a very speculative form of investment. Therefore, one should always keep in mind that cryptocurrencies are not yet actual currencies, although the market is constantly maturing.

Bitcoin is considered the most “stable” of the cryptocurrencies as it has been tested the most and the largest network backing it. Nevertheless, even Bitcoin is subject to enormous volatility and is therefore generally considered a very risky investment, which is why cryptocurrencies cannot yet be considered an actual currency.

At the same time, investors should be aware that more and more companies are supporting Bitcoin and even including it in their balance sheets. This development shows that cryptocurrencies in general are gaining more and more trust and that great opportunities may open up here in the future.

2. The anonymity of cryptocurrencies

As the alternative investment form became more popular and the media dealt with the topic of cryptocurrencies, the topic of the anonymity of cryptocurrencies came up again and again. Among other things, cryptocurrencies are traded in peer-to-peer networks, where transactions take place without clear names. The alleged anonymity of Bitcoin & Co would facilitate criminal activities such as money laundering.

However, this anonymity is in some ways a misconception. Although only a pseudonym is used in a transaction, crypto exchanges require the identification of the user upon registration. This allows governments to trace the origin of a transaction. Complete anonymity is therefore by no means a given.

3. Different forms of investment

As with all financial products that suddenly gained huge popularity, the financial industry also pounced on cryptocurrencies and developed a wide mass of financial products. So, if you talk about “I invest in Bitcoin”, there are a lot of investment forms behind it, all of which have their advantages and disadvantages.

While coins can be purchased on both centralized and decentralized trading platforms, there is also the option of buying crypto ETN’s or derivatives, among others. Deciding which form of cryptocurrency investment is right for you is not an easy task as a beginner.

It makes a lot of sense to consult an expert here. The online course from Teach me DeFi helps you to make smart investment decisions that suit you and are profitable.

4. The storage of Coins

If you decide to invest in “real” coins, they must be stored safely, which is an aspect that many crypto beginners have not dealt with in detail yet. The coins are not stored in a bank, but in so-called wallets, which are digital purses. These wallets are encrypted and can only be opened with a special key.

As with securities, it is possible to simply leave the coins on the wallet and store them offline, which is called “cold storage”. However, one also has access to decentralized crypto markets where the coins can be traded.

5. Exchanging cryptocurrencies for fiat currencies

Before exchanging fiat currencies for each other, one compares exchange rates and tries to pick the best one. With cryptocurrencies, things are different. The volatility already mentioned above means that there are hardly any stable exchange rates for cryptocurrencies. Especially if you invest in smaller cryptocurrencies, this can become a problem. Here, an exchange into larger currencies such as Bitcoin may first become necessary before an exchange into a fiat currency becomes possible at all.

However, volatility can also become problematic during the transaction process of the exchange. These can occasionally drag on if the blockchain is overloaded. During this time, there could again be severe fluctuations in value that could lead to major monetary losses.

Conclusion

From the points mentioned above, you can definitely see that there are a few things to consider before investing in cryptocurrencies. In order to realize the profit potentials of cryptocurrencies, an intensive study of the investment form is necessary.

Although the risks are still high due to the strong fluctuations in the value of cryptocurrencies, financial experts see a maturing market in the investment form based on new technologies, which promises investors many opportunities for profit. Therefore, everyone should educate themselves on the topic of cryptocurrencies.