Investing in crypto in 2022 is as lucrative as it can get. You have better chances of succeeding as a trader than failing. However, the case is not the same for everyone. To succeed, you must first know what you are getting yourself into.
So, here are a few things to consider before investing in a cryptocurrency.
#1 Not All Cryptocurrencies are the Same
Many cryptocurrencies are designed for specific purposes. Some are designed for use by individuals and small businesses, while others are designed for use within a particular country or industry. The most popular cryptocurrency in the world today is Bitcoin, which was created to be a form of digital cash that could be used anywhere in the world without any restrictions.
Another thing you should consider when deciding which cryptocurrency to invest in is whether it is intended to be used as an investment or simply as a method of payment.
For example, Ethereum (ETH) is an alternative coin whose primary purpose is not to facilitate transactions but rather to act as a platform for other projects that require smart contracts on their blockchain network. That allows programmers from all over the world to build applications on top of Ethereum’s network rather than having their separate ones built from scratch.
#2 Cryptocurrencies are Volatile
Cryptocurrencies are volatile. They’re not stable or regulated by a government or backed by any real-world value (like gold). Cryptocurrencies are not backed by any asset and their value is based on demand from the market. It can fluctuate based on speculation and news. Cryptocurrencies aren’t stable. So, prepare for fluctuations in your investment portfolio and cryptocurrency prices.
#3 Not All Cryptocurrencies are Tailored for Investment
Before you invest in cryptocurrency, you should understand why it’s a risky investment and how to mitigate that risk.
- Not all cryptocurrencies are tailored for investment. Some cryptocurrencies are platforms for applications to be built on top of them or have no practical use case other than being bought and sold by speculators. The cryptocurrency value of these coins is solely dependent on speculation, which makes them poorly suited for investors seeking stability and returns over time.
- Investing in cryptocurrency requires careful research into each currency’s technology and the team behind the project (the “white paper”), and their roadmap for development moving forward. Without this information, investors can’t make informed decisions about which projects will succeed versus those that will fail—and there has been a lot of money lost due to uninformed investments made in the past few years!
#4 The Technology of Cryptocurrency is Constantly Evolving
Bitcoin is the first, the most popular, and largest cryptocurrency by market capitalization. Today it’s still the king of cryptocurrencies, with a market cap of over $100 billion as of January 2018. Bitcoin is also accepted at most online retailers and restaurants. As a result, you can use bitcoin to pay for goods or services provided by many merchants.
The technology behind Bitcoin has evolved very quickly since it was introduced in 2009. For example, in 2013 Lightning Network was added to help improve transaction speed (transaction times are currently about 10 minutes).
#5 Some Cryptocurrencies have Limited Utility
Some cryptocurrencies have limited utility. Bitcoin, for example, is a store of value that you can exchange with others in exchange for goods and services. Ether is more like an engine that powers the Ethereum blockchain and decentralized applications (DApps).
Ethereum has many DApps that you can use for various purposes, such as entertainment or finance. The use case for this cryptocurrency is to provide a platform where developers can build upon it (similar to how apps are built on Android or iOS).
#6 Cryptocurrency markets are Not Equal
The cryptocurrency markets are not all equal. Some cryptocurrency markets are more active than others, some are more liquid, and some have a higher volume of regulated trading (such as U.S. dollars). The size of the cryptocurrency market also varies from market to market, with smaller alt-coins being less liquid than Bitcoin or Ethereum. All these factors can affect your investment decision, so it is vital to understand what they mean before investing in digital currencies.
The first factor to consider when evaluating the potential returns on an investment is whether or not there is sufficient liquidity in that particular currency.
#7 Regulatory Agencies are Not Always Active
Regulatory agencies are not always active in cryptocurrency markets. Regulatory bodies around the world have taken a wait-and-see approach to cryptocurrencies. While some regulators have taken a hard stance against digital currencies and blocked their use for payments or ICOs, others have adopted a more relaxed attitude and are instead working on finding ways to embrace and regulate the technology.
In China, for example, regulators banned all ICOs in September 2017—but there is still talk of launching an official government-backed cryptocurrency sometime in the future.
Hopefully, this article has given you a good idea of what to look into before investing in cryptocurrencies. Consider the risks and benefits, talk to an expert if necessary, and ensure that your investment is well-suited for you.