Three Things to Be Cautious of if You’re Investing in Cryptocurrency
17 May, 2022
Tips to Ensure You Don’t Mismanage Your Investment Funds
Cryptocurrency is arguably one of the most exciting things to happen in finance in the last several decades. It’s a booming market that is ripe with opportunity, and many savvy investors are taking part in the proverbial gold rush aspect by diversifying their portfolios with it. Digital currency is now considered a staple in personal financial planning and retirement planning; however, there’s still much to be learned about cryptocurrency from an investment standpoint.
What is Cryptocurrency?
Cryptocurrency is a digital asset – typically a coin or token – that allows people to securely buy goods and services without the need for traditional banks or financial institutions. Instead, most cryptocurrency is supported by blockchain technology, which is a tamper-proof method of tracking transactions and ownership of cryptocurrency. Blockchain is key because it prevents people from duplicating cryptocurrency or defrauding others.
What to Know if You’re Thinking About Investing in Cryptocurrency
Despite the amount of legitimacy that cryptocurrency has earned over the years, it remains uncharted territory for many investors. There are over 17,000 different types of cryptocurrency in existence right now, many of which cropped up in the last five years or so.
New is usually good when you’re talking about cars, smartphones, or other forms of tech. New forms of currency are a different story. There’s a lot of risk involved when investing in the relatively unknown. Let’s break this down with a top five list of things to watch out for when examining cryptocurrency as a potential investment.
#1 – An Unproven Market
There are some markets that operate like clockwork. Real estate, for instance, is far less speculative than crypto and has a much more established track record of recovery. It’s not a fool-proof investment by any means, but it’s generally considered a safe bet. That’s why so many advisors recommend investing in property. Cryptocurrency, on the other hand, is a mostly unproven and untested market. Granted, there have been some success stories like Bitcoin, but there are hundreds of fly-by-night digital currencies that are incredibly risky from an investor standpoint.
#2 – Vulnerable to Sudden Change and Crashes
As an investor, the last thing that you want to hear is that one of your primary investments tanked over 20% in a 24-hour period. Much the same way that you can gain value very quickly in the cryptocurrency world, you can also lose value in the blink of an eye. For short term investors, this may be an acceptable risk, but it does not bode well for long-term investments. Cryptocurrency is single-handedly rewriting the definition of market volatility.
#3 – Not Widely Accepted
Just because you own cryptocurrency doesn’t necessarily mean that you’ll be able to use it in the way that you want. For instance, if you have a lesser-known variety of cryptocurrency, you may have trouble spending it because it’s not accepted everywhere. Additionally, many government agencies around the world have not fully embraced cryptocurrency, which further muddies the waters of its true value.
Our Advice on Cryptocurrency? Invest with Caution
Hindsight is 20/20. We all wish that we would’ve been one of the first to invest in Bitcoin knowing what we know now about it. However, success stories like Bitcoin are few and far between. There’s no way of telling if Bitcoin will continue to be successful in the future nor is there any way to know which digital currency will be at the top of the cryptocurrency heap in a year’s time.
If you invest in any cryptocurrency, do so with caution. Any money you invest in cryptocurrency is susceptible to huge losses, so we advise not making it a huge part of your portfolio. If investments were a roulette table, cryptocurrency would be like betting on the double-zero space. It’s a bit of a longshot, so it’s best to spread your chips to other parts of the investment table with better odds.
Contact Foresight Financial Design Today for Expert Financial Planning!
In addition to helping folks understand cryptocurrency investing, Foresight Financial also offers the following services:
- Financial planning
- Financial management
- Private wealth management
- Small business finance management
- Estate preservation and transfer
- Protection planning services
- Infinite banking concept set-up
Our team will be happy to sit down with you and discuss your financial goals in addition to areas of opportunity that we see regarding your portfolio. It’s never too early to start thinking about financial planning for your future. Get in touch with us today to schedule your initial consultation.