https://nasacademy.com/blog/article/should-you-invest-in-cryptocurrency
If you’ve ventured into the world of cryptocurrency, it’s likely that you’ve spotted a message about making millions by trading and staking crypto. And we are not saying it is wrong, just that there is too much noise around how to invest in cryptocurrency. And yet, very few stop to ask if you should invest in cryptocurrency in the first place.
So in this article, we’ll talk about who should invest in crypto – or not.
Because let’s face it, it’s not for everyone. (No, we are not talking about Blockchain itself, as this technology holds the potential to impact our daily lives.) If you want to explore use-cases of Blockchain outside crypto, we would recommend that you go through our article What is Blockchain Used For.
To unfold the answer to this underrated question, here’s some points on what to consider when you invest in cryptocurrency.
It’s not happy money that’s going to make you rich overnight – there are naturally some risks involved in cryptocurrencies.
You invest in a mutual fund or a stock of your favorite company. Instead of making a decent return, things go haywire and the company runs away with your funds. What can you do about it? Well, for starters, you can reach out to the regulatory body.
Every country has an independent government body which safeguards the interests of retail investors. For the US, this body is the SEC, in India it is called SEBI.
Not only do these bodies defend your money, they also prevent malpractices in the market.
But let’s go to the other side of the spectrum: imagine if Uniswap (a decentralized exchange) is hacked and you lose money. Who is responsible for that? As it turns out…no one!
No government body is authorized to seek answers on your behalf.
Generally, crypto maximalists are often pushing against regulations, but they are equally important.
This is both the boon and bane of Web 3 world, in general. You hold your assets in your wallet. Which means you have the complete custody of your assets. You understand the merits of it. But it could backfire.
Imagine that you forget the password of your social media account. There is this ‘forgot password’ button at your disposal. Hit it, and you are rescued. But Web 3 is decentralized. If you forget the seed phrase to your wallet, there is no recovering it.
A lot of BTC is lost in this manner. So if you do not trust yourself with passwords, better rethink your crypto investment strategy…
Crypto is not meant for the faint hearted. Bitcoin often rises and falls ~10% in a single day. This is very new for someone who is investing in blue chip stocks in the stock market. This needs to be taken with a pinch of salt. If fortunes are made in the crypto market, there are many who lost it as well.
Cryptocurrency market is at its nascent stage and extremely immature at this time. If you are comparing it with the stock markets, you are highly mistaken. Stock markets have been in existence for decades. Compare that to a measly 8 years of cryptocurrency mainstream trading.
Secondly, there is a lot of data and history available for stock market investors. Same is not the case for crypto. Therefore, markets often fluctuate more than the comfort levels of many.
Before coming to the framework of evaluating whether or not you should invest in cryptocurrency, first consider if you are one of the few people who should definitely stay away from this market.
If you think investing in cryptocurrency would make you ‘cooler’ amongst your peers and family, we think it is time to reconsider your strategy. Nothing says ‘I am a moron’ more than investing in an asset for bragging rights. It is your hard earned money and nobody cares if you lose it. If you are solely doing it for the sake of satisfying your ego, we have bad news for you.
Are you investing because your friend asked you to? Oh, maybe because your friend’s friend made 50x on his investment? Well, if stories were to be believed, everyone would have been Richie Rich by now. So if you plan to invest ONLY because your friends gave you the tip to the next ‘to the moon’ coin. Quit it!
Once again, it is a sad state of the media that news that makes it to the headlines is only about people generating life changing wealth. Why isn’t anyone talking about how some people lost everything in a rug pull? So next time you think of investing because you feel that you are missing out on something, hold that thought. You are not.
Think of it this way. If you have access to news that can potentially take a coin to 10x, trust us, everybody else knows about it too. It is already too late if you are learning about it from the news. So it is better to use your own gray matter and not get caught up in the FOMO hype.
Let us start with a small quiz. After the end of this section, you should be able to understand if you are eligible to invest in cryptocurrency or not.
Whenever a market is new, it goes through phases of maturity. Crypto market is in its phase 1 right now. Which means that a lot of development, dApps are being built because there is just too much optimism. However, as the market matures, a lot of these projects are going to fail. Just like any other industry, only the fittest would survive.
So, what happens if you lose all your crypto investment one day? If that is going to give your heart and mind a tough time, we need to re-evaluate.
Another important question that you need to ask yourself before jumping into the cryptocurrency market. It is not as simple as Web 2 where you sign in using Facebook or Google.
In crypto, you are the sole owner of your assets. So there is a definite learning curve involved in learning how to protect your crypto from hacks, password thefts etc. To give you some perspective, take a look at how to set up a Metamask wallet.
Metamask will not ask for your email ID/phone number before creating an account. All you would get is a secret key phrase to recover your account if need be. However, storing that seed phrase is an art in itself. If you lose that phrase, you lose your crypto. Storing it on Google docs? You are again relying on a centralized authority. If you write it on a paper, you risk losing it, damaging it. You get the vibe.
The crypto native acronym DYOR comes in extremely handy here. Doing your own research is indispensable if you are in it for a long term. The industry is so fast paced that one has to unlearn and relearn every single day. As an example, Solana was considered to be an Ethereum killer.
And without going too much into the details, Solana was much faster and cheaper than Ethereum (the biggest player right now).
As a result, price of $SOL was rallying like crazy. But in the past 3 months, Solana was shut down three times due to different types of attacks. As a result, $SOL took a fair share of beating. So, in a span of 90 odd days, Solana has seen a fluctuation of nearly 60% from its all time high.
So if something as big as Solana can move from ETH killer to ‘somebody I used to know,’ it is evident that narratives change here every week. As an investor you need to be aware.
Sad but true. Since there is no regulation involved in the crypto market, anyone can publicly share the sensitive information (which is not allowed in Stock markets). This leads to drastic price inflation at times. For example, Dogecoin, which was meant to be a meme, rallied from a price of $0.05 to $0.64 (a 10x growth) after Elon Musk started talking about it.
This also meant that a lot of new investors were entering into the market solely to purchase $DOGE. For the uninitiated, Dogecoin has no utility whatsoever. Original creators had abandoned the project back in 2016.
Sharpe Ratio, Variance, Standard Deviation. Terms like these should not scare you when it comes to investing in cryptocurrencies. This stuff can come in really handy and one should be willing to learn all of these.
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By Admin Nas Academy
By Admin Nas Academy
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