Cryptocurrency is digital money that doesn’t need a bank or financial institution to verify transactions. Instead, it uses blockchain technology to track your assets and trades in a secure, unchangeable ledger. It’s an exciting new investment category, but before you buy into it, consider these three important things:
#1 Do Your Research
As with any investments, you need to thoroughly research cryptocurrencies before buying them. Read the websites of any that you’re considering, and don’t be afraid to reach out to experts in the space for more information. It’s also a good idea to diversify your holdings, as prices can be very volatile. If you’re investing for the long term, this may not be a big deal, but if your investment portfolio or mental health can’t handle dramatic swings in price, you may want to consider keeping your exposure limited.
#2 Understand the Risks
Cryptocurrencies are not backed by any government or financial institution, and they’re not protected by deposit insurance. This means that if you lose money invested in a cryptocurrency, there’s no guarantee you’ll get it back. This is a significant difference from traditional investments, where the U.S. Securities and Exchange Commission regulates them as securities and provides some consumer protections.
Another potential risk of cryptocurrencies is that they’re often linked to specific technological products that haven’t been proven to work, and the viability of those projects can be difficult to discern. If you’re interested in a particular cryptocurrency, try to find out as much as possible about the people running the project and how it’s being used. Many reputable cryptocurrencies make this information publicly available, and you can look for things like how widely the currency is being used and whether it’s backed by other well-known investors.
#3 Know How to Store Your Coins
Finally, remember that just as you can store cash in your wallet or safe at home, there are a variety of ways to store crypto. You can keep it on a public exchange, transfer it to a third-party service for storage, or take extra precautions with a hardware wallet. Whatever your choice, make sure you’re protecting it with a strong password or PIN and avoiding public Wi-Fi when accessing your wallet.
If you’re ready to invest in crypto, start with a small percentage of your investable funds. This will help you get a feel for how it works while still leaving enough in reserve to cover your expenses. Then, if you’re comfortable, you can increase your stake as you learn more about the market. Just be aware that any investment is at risk of losing value. And, as always, don’t invest any money that you can’t afford to lose. Good luck!