Cryptocurrencies are particularly scrutinized in the finance sector. Bitcoin in particular is attracting attention. It has just broken a price record and is bringing in a lot of money for investors. The reasons for this success are multiple. This phenomenon has led to another: the emergence of so-called “additional” investors. Very large companies like pension funds, American financial companies like Blackrock, have decided to invest in cryptocurrencies. They think that it can be an interesting investment because there has been a phenomenal increase in the last.
Cryptocurrencies are a very risky type of investment. People who place their funds in cryptocurrency products must understand the risks of investing. Due to the highly volatile nature of cryptocurrencies, you may want to ensure that you do not put all your ‘risky’ investment funds into cryptocurrencies. However, there are many tools to predict the movement of Bitcoin value. Want to know? Just read more! Such tools are the main helpers for beginners.
You can use these two methods to reduce risk
There are two methods that can be used to reduce risk: If you choose to invest, you can invest in more than one cryptocurrency. This diversification should reduce your overall risk. If you choose to trade, you may be using a broker that offers guaranteed stop losses, and trade in small amounts so that you are effectively not being leveraged or even de-leveraged.
The unregulated world of bitcoin and other cryptocurrencies offers the potential for big profits, but it also comes with its own set of uncertainties. Before investing, be aware that it can be complex to buy cryptocurrency. This requires the creation of a digital wallet, which many financial institutions do not allow. You will also have to pay foreign currency transaction fees to buy cryptocurrency. Cryptocurrency is not regulated or insured and its value fluctuates a lot. Invest only if you are prepared to take some financial risk.
Cryptocurrency is all the rage these days, but is it really worth it?
Many people start investing in cryptocurrencies like Bitcoin because they seem to offer unlimited opportunities to make a big profit without having to put in too much effort. However, cryptocurrency has a reputation for being unpredictable because it is unregulated. It is therefore normal that you wonder if it is right for you.
So here are five things to know before investing in cryptocurrency:
1. Cryptocurrency can be hard to buy
Cryptocurrency is a decentralized digital currency. This means that it is neither produced nor controlled by any central government or banking sector. So you can’t walk to the nearest ATM, insert your bank card and get physical bitcoins to buy a coffee like you would with good old Canadian dollars.
To buy cryptocurrency, you need to create an online digital wallet. This wallet is basically an online platform that lets you store bitcoins (or other digital currencies) so you can buy and sell them using dollars or any other physical currency. To buy, sell and trade cryptocurrency, you must first get a digital wallet and then go to a cryptocurrency exchange. So far, nothing complicated.
However, many financial institutions do not allow using their debit or credit cards to buy or sell cryptocurrency. These additional constraints make converting dollars to bitcoins somewhat difficult.
2. Purchasing cryptocurrency may incur foreign currency transaction fees
Since cryptocurrency is not associated with any government or financial institution, you can buy it on exchanges around the world. This flexibility is a great advantage, as it allows you to trade on any exchange, without having to limit yourself to our country.
Unfortunately, if you choose to use cryptocurrency exchanges based outside of this country, you will almost certainly have to pay foreign currency transaction fees. The standard 2-3% fee that most credit card companies charge may seem low, but that means if you buy $1,000 worth of bitcoin, you’ll have to pay a $30 fee.
3. Cryptocurrency is not regulated or insured
For many new cryptocurrency investors, it can be worrying to know that digital currencies like Bitcoin are not associated with a government or central bank. In fact, unlike savings accounts and other bank accounts in our country, digital wallets are not insured by the Deposit Insurance Corporation. If you invest money in cryptocurrency, you do so at your own risk.
Does this mean you should avoid cryptocurrency at all costs? Not necessarily, especially if you’re willing to take some financial risk. Be careful though and avoid putting all your eggs in one basket. A great way to do this is to diversify your assets by also investing your hard-earned money in a tax-free savings account or registered retirement savings plan.
4. Cryptocurrency must be converted into monetary currency
Since cryptocurrency is held in digital wallets, you can’t just buy bitcoins and then go spend them at the mall. You need to convert your digital currency to a form accepted by the majority of businesses and stores, as only a few places accept cryptocurrency.
Most exchanges where you can buy cryptocurrencies also allow you to convert them to Euros, Canadian dollars, US dollars or other common currencies. You can deposit this money directly into a PayPal or bank account.
5. The value of cryptocurrency fluctuates (a lot)
When Bitcoin entered our collective vocabulary in early 2009, it wasn’t worth much. In fact, during the first few years of existence of this digital currency, each bitcoin was worth around $160 after the initial spike in value. According to CoinDesk, Bitcoin has seen tremendous growth since its launch. It reached an all-time high worth over $25,000 at the end of 2017, before dropping to just $4,400 a year later.
This means that cryptocurrency is a high-risk investment, especially when compared to much more stable and reliable assets held in dollars or any other major currency. The fact that the value of cryptocurrency fluctuates so much also indicates that it is not necessarily the ideal currency in which to invest life savings.
Cryptocurrency made simple
Cryptocurrency is an exciting technology that has many potential advantages over traditional currencies. However, this is an investment that comes with risks and uncertainties, so consider your options and risk tolerance carefully before taking the plunge.
