How to invest in cryptocurrencies according to the experts
Investing in any financial asset requires you do your research but in the case of digital financial assets expect a whole new set of obstacles to deal with.
Cryptocurrency has only been around for a little more than a decade with the advent of Bitcoin in 2009. Since then, the range of options to invest in digital coins and non-fungible tokens (NFT) has exploded. Crypto has its advocates saying its a great investment, and detractors who liken it to gambling or a Ponzi scheme.
The extremely volatile digital assets have been on a rollercoaster ride since just prior to the onset of the covid-19 pandemic with values soaring only to plummet just as fast. The crypto market capitalization has lost over two thirds of its value since it peaked over $2.9 trillion in November 2021. It should go without saying then that anyone planning on investing in Bitcoin or other digital assets should keep in mind their risk tolerance, financial health and whether their mental health can handle the whiplash of cryptocurrency swings.
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Experts who are for investing in cryptocurrency advise caution
You’ve probably been on the internet and seen ads touting the tremendous gains that can be made with digital assets or even received a cold call to convince you to jump in. An advocate for investing in crypto, Patrick Moore, of CryptoWhat told GOBankingRates, “Crazy profits have been made just about as much as losses in the industry.”
“As a crypto expert, I wouldn’t advise anyone, least of all someone looking to dabble in the industry to sink their life’s savings in crypto,” Moore said. “5% of your investments would be great, but not all of it,” he advises given that the risk is still quite high.
Tanya Zhang, co-founder of Nimble Made, warns that cryptocurrency is still in its infancy despite it being “all the rage,” currently. “If you want to participate, do your research beforehand and start with a small investment,” she says. Also that you should be ready to encounter obstacles that aren’t found in other more traditional investments.
There were those who joined the crypto party late and got severely burned in what is being called the “crypto winter” many of whom were driven by FOMO, or fear of missing out. Jared Tendler, mental game coach and author of “The Mental Game of Trading” warns not to let FOMO impact your decision making. “It’s important to learn to isolate elements like FOMO that might force [you] to jump into positions outside of [your] strategy,” he said.
Skeptics say not to touch digital assets that are hype and speculation
Standard basic advice is do not attempt to predict the market. Professional investors often get it wrong and for those who have at most an elementary understanding of markets it’s extremely risky. If you are investing for your future, you want to take a long-term view.
Many investors try to follow the market strategy of “buy low, sell high” but it can be difficult to predict the market. This is especially true for cryptocurrencies that can jump or drop at a moment’s notice on a tweet from Elon Musk or some other influencer that is hyping them. The instability of the crypto market and assets’ lack of “real” value has some experts very much against putting money into digital assets.
“In crypto, you’re buying a currency that may or may not have sustainable value due to the lack of income and lack of regulation. There are still too many unknown risks associated with it which makes it too risky of an investment, in my opinion,” says Michael Shea, financial advisor at Applied Capital. “I would not recommend dabbling in crypto.”
Just becasue it is popular now, there are doubts about whether digital assets will even be around in the future warns Adam Garcia, founder of The Stock Dork who considers it more than risky. “You never know what you’ll get each day,” he told GoBankingRates saying it is as “hot-tempered as a 12-year-old.”
Self-described “outspoken critic of cryptocurrency” Jake Hill, CEO of DebtHammer, considers investments like digital coins poor choices to sink your money into if the value can be moved by “a single tweet from a billionaire.” Adding, “As a concept, I find them to be steeped in fake advertising, essentially playing off of peoples’ fears and valid concerns.”
The current state of the crypto asset market
Bitcoin recently dropped below the value of its first major peak, hit back in 2017. After it reached a high approaching $20,000 at that time, it dropped back to sixteen percent of its peak. And it would take three years to rise to the same level again. The interim between 2020 and today has seen Bitcoin’s value swing violently up and then down again.
The two biggest cryptocurrencies by market cap, Bitcoin and Ethereum, rebounded somewhat in March after dropping from their November 2021 peaks only to begin to slide once again in April with their decent accelerating in May. Bitcoin experienced a brief rise in early June but now stands at less than a third of its highwater mark. The tremendous loss of value came as investors sought safe harbors as inflation hit four-decade highs and the Federal Reserve moved aggressively to rein in rising prices on top of a volatile global situation.
The last precipitous drop in digital asset values has been driven by the collapse of TerraUSD, a stablecoin, which was supposed to have its value pegged to the US dollar through a complicated algorithm. However, when it became unhinged in June, it imploded in spectacular fashion and is now basically worthless.
Perhaps an even more spectacular example of depreciation in value can be found in the attempted sale of the NFT of Twitter founder Jack Dorsey’s first-ever tweet. It was purchased for $2.9 million in March 2021 by Iranian-born crypto entrepreneur Sina Estavi. However, when he tried to sell it in April this year for $48 million, he got just seven offers, the highest for just under $280.