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Cryptocurrency: To Invest or Not

Cryptocurrency as an investment is a highly contentious subject. The crypto bulls (people who think crypto is valuable) will tell you that Bitcoin and Ethereum are great and everyone should invest. On the other end, crypto bears (people who doubt the value of crypto) will tell you that investing in crypto is basically gambling. This article is meant to give you a base of knowledge that you can expand on and make your own decisions.

When talking about crypto, there are a couple of things to keep in mind. First, it’s important to differentiate between a serious coin and what is called a “junk coin”. Serious coins are cryptocurrencies like bitcoin, ethereum, and others who typically have well written and detailed founding documents (also called white papers),defined functionality, and large user bases with significant liquidity pools. Liquidity pools are a large amount of funds put into a pool, which are there so that when an entity wishes to sell their coins, they can, even if there is no buyer. Large liquidity pools mean that the crypto is active and seeing large volumes of orders moving. This in turn means that the crypto is healthy and functioning. Junk coins on the other hand, are usually small, have copied whitepapers, promise a lot but have little substance, and generally feel fake.

Secondly, as with all investing, you must understand that you are entering an environment that is by nature, risky. Whatever you put in, you are not guaranteed to get out. So, take your time in researching and make sure you understand what you are investing in. Most experts agree that if crypto is the way of the future, the path will be long and therefore, there will be plenty of time to jump in. Invest only what you are comfortable losing.

Investing in specific cryptocurrencies largely come down to the beliefs of the investor. If you feel that Bitcoin is a better investment because it has stronger protocols than other coins, it may be a better investment for you. If you are looking for long term investment, it may be better to choose established cryptos that have strong followings. You can also invest in exchanges which is similar to investing in an index. It basically means that you are investing in a lot of cryptocurrencies at once. This way it can mitigate your risk.

In conclusion, only invest in what you understand and what you believe in. Do not jump in because of FOMO, many people have lost money doing just that. Do not put in what you cannot afford to lose. Lastly, understand that like all investing, putting in the time and doing the due diligence and understanding why a specific currency is going to appreciate is far more important than “stocksonly go up”.

Sources:

• https://www.entrepreneur.com/article/373188#:~:text=Consider%20the%20liquidity%20pool.,should%20be%20a%20warning%20sign.
• https://www.bloomberg.com/opinion/articles/2021-07-11/the-big-question-is-investing-in-crypto-worth-the-risk
• https://www.investopedia.com/ask/answers/100314/why-do-bitcoins-have-value.asp
• https://www.sofi.com/learn/content/understanding-the-different-types-of-cryptocurrency/
• https://www.fool.com/investing/stock-market/market-sectors/financials/cryptocurrency-stocks/types-of-cryptocurrencies/
• https://www.fool.com/investing/stock-market/market-sectors/financials/blockchain-stocks/is-cryptocurrency-good-investment/