Cryptocurrency is quickly gaining popularity amidst rising acceptance by organizations and despite volatile market conditions. Bitcoin and, by extension, other altcoins, offer traders a high-risk, high-reward investment. But, how do you know if investing in Bitcoin is for you?
Firstly, it’s important to get a grasp of how Bitcoin and many other cryptocurrencies operate—through the blockchain. In essence, the blockchain is a ledger that is based on data sets that are linked to each other and secured through cryptography. Because of this technology, almost anyone with internet access can buy and trade these cryptos securely and anonymously.
Bitcoin pioneered the use of this technology and became the first of many digital currencies. The majority of altcoins, or alternative cryptocurrencies, have taken the framework laid down by Bitcoin and implemented their own updates and tweaks on them.
With these things in mind, here are questions you need to ask yourself before investing in this digital currency:
- What is your goal in investing?
Unlike traditional investments backed by real assets, trading Bitcoin is closer to taking a gamble in a casino. Because of the volatile market, you may not be able to project how well Bitcoin will do. Carefully consider your current financial status and overall goals to see if trading will let you adequately achieve them.
Generally speaking, Bitcoin investments shouldn’t be wholly relied on to finance your retirement plan or other similar objectives. If your investment is less towards financing personal goals and more on supporting this new and ever-evolving fintech, you may be able to explore more long-term strategies.
- Who can you trust to help you learn?
Bitcoin is a decentralized cryptocurrency—its value and management are not linked to any government or bank.
While Bitcoin is easily the most recognizable out of all the digital currencies, there is a learning curve for understanding how Bitcoin and its market works, how and when to sell your investment, and how closely you need to monitor market news and prices.
Luckily, many Bitcoin communities can offer a wealth of information to help you better grasp its intricacies and even online stock trading basics. Other crypto traders may also be potential sources of guidance and advice before you dive in.
- Is it a good fit for your risk appetite?
As mentioned earlier, Bitcoin and other cryptocurrencies are prone to volatility and are not backed by real assets. Because of this, they should be considered high-risk investments, with the possibility of losing 100% of its value.
Government-mandated regulations, cybercrime incidents, jeopardized reputations of the currency or its developers, and even simple devaluation are just some of the factors that can make your Bitcoin investment worthless. Investing in Bitcoin means you should be ready to lose money on your investment with no recompense potentially.
Ask, and You Shall Find Out
At the end of the day, Bitcoin and the cryptocurrency market are still relatively new financial technologies. While they can hold great promise for the future of lending, spending, and other money matters, they are currently at a point where nearly anything can make or break their value.
Investing in Bitcoin may not be for everyone, so knowing what to consider before trading can help you make more informed decisions.