The increasing popularity of Bitcoin and other cryptocurrencies over the last couple of years reveals deep-rooted human propensity to embrace risk in the search for gains. Of course, in 2017, Bitcoin rewarded investors with 1,390% gains, Ethereum soared 8,981%, Litecoin delivered 5,572% gains and Ripple investors amassed an outstanding 28,963% by the end of the year. However, the cryptocurrency markets have been on a predominantly bearish trend for much of this year. Bitcoin is down 53.49%, Ethereum has lost 50%, Litecoin has declined by more than 71% and Ripple investors have lost a massive 84% in the year-to-date period.
Cryptocurrencies are massively volatile, and fortunes can be made or lost within a short while as seen above; yet, most people joining the cryptocurrency train tend to have a certain measure of megalomania that they’ll make money. Before you get started trading or investing in cryptocurrencies, here are 4 important questions you may want to ask yourself.
- Do I understand cryptocurrencies?
Cryptocurrencies are still in a nascent stage likened to the wild wild west. There are currently more than 1770 cryptocurrencies, altcoins, and tokens in the market. Some of them are innovative and unique, some of them are copycats, some are trying to reinvent the wheel, and some of them are worth nothing more than a landing page and whitepapers. You need to be sure that you understand the value proposition of cryptocurrencies, know how they are likely to change the world, and be able to separate the promising ones from the scams.
- Do I have the knowledge it takes to succeed?
Trading or investing in cryptocurrencies will requires lots of effort conducting due diligence on your path. You’ll need to become accustomed to fundamental analysis and you’ll need to embrace the multiple screens and squiggly lines of technical analysis. You’ll need to take the time to find an exchange that will help you reach your goals. For instance, this Binance guide by ChainBits takes new traders and investors through the basics and advanced modules of using a cryptocurrency exchange. You’ll also need to go out of your way to invest in the storage and security of your coins.
- Can I afford to take the risks?
When trading or investing in cryptocurrencies, it is often advised that you should only play the markets with money that you can afford to lose. The bulk or entirety of a cryptocurrency portfolio can be wiped out in a flash by bad news, regulation, or cybercrime. Hence, you need to be sure that the money you want to spend on crypto won’t be money that will take you closer to bankruptcy if things go south. Buying cryptocurrencies with credit cards might not be a good idea and you should think twice about holding all your investment as cryptocurrency or putting the kids’ college fund on crypto.
- Can I control my emotions?
Legendary investor, Warren Buffet is often quoted for advising stock investors to “be greedy when others are fearful, be fearful when others are greedy”. While the same might not necessarily hold with cryptocurrencies because of how the herd mentality moves the market; cryptocurrency traders and investors might want to be extra cautious about greed. Anybody can make money in a bull market, but it takes a great deal of experience, expertise, and discipline to consistently make money in a bear market. You need to be able to control the debilitating emotions of fear and greed so that you can cut off losers as soon as possible and allow your winners to run all the way to the top.