Since its inception nearly a decade ago, we’ve seen consumer adoption of cryptocurrencies transition from a slow crawl to a sprint to the nearest Bitcoin ATM. With this exponential growth has come an enticing but uncharted new market for investment.
Digital currencies such as Bitcoin have reached values of over $19,000 USD in the recent months and despite the market entering a phase of volatility, cryptocurrencies are receiving notable interest from mainstream media, consumers, and investors. Professional investors see the value of adding these high-risk items to their investment portfolios and it’s time for general consumers to start heavily considering crypto market investments as well.
While professional investors tend to explore high-risk, high-reward investments like cryptocurrency, consumers who manage their investments independently traditionally take a more conservative approach. A risk-averse approach to personal investing is a common, and smart, strategy; however, as an increasing number of industries continue to explore the digital currency space, it is crucial that even conservative investors remain open to diversifying their portfolios with stocks that provide exposure to cryptocurrency.
With that in mind, here are the top five things consumers should know before investing in cryptocurrencies.
1. Do your research.
While many companies involved in crypto can offer a significant profit, it is crucial that consumers looking to invest can spot the legitimate companies from those trying to capitalize on a hot market without the knowledge to do so sustainably. At Block X, our team is comprised of industry experts who are dedicated to researching the best investment opportunities through rigorous due diligence processes.
- If investing in crypto on your own, be sure to put together a personal due diligence checklist to ensure your potential investments are planning for long-term growth. Items to look for include:
- A legitimate team. Verify the company and its team on LinkedIn or through credible media sources to ensure the company is transparent about its members.
- A verifiable collection of source code via the company’s code base
- The problem that the company is solving. Be sure that the company has identified a gap in the market and is committed to being a leader in their space.
- Proof of concept or beta. This will provide insight into the company’s long-term strategy and if it will be around in the long-run.
2. Be responsible
Cryptocurrencies can belong in any investment portfolio but should still be treated as high risk. While the potential for high returns make it tempting to invest heavily in crypto, ensuring your portfolio remains balanced is crucial. Crypto investments should make up approximately 10-20% of your portfolio. When investing independently, be sure to diversify, stick to blue chip stocks, and take some gains off the table when you can.
3. Be realistic
Crypto investments tend to receive the most attention when they peak in value, resulting in extreme gains. This has created a false perception that crypto investments are a “sure thing.” While that has been the case in the past, approaching Crypto investments this way is not a strategy to count on.
Think back to the dotcom boom which saw the creation of some of the highest market valued companies of our time. Fast forward a few years and the majority of those companies have not stood the test of time.
4. Be vigilant, borderline paranoid
If investing on your own, vigilance comes in the form of remembering to use reputable exchanges and wallets, keeping private keys private, and moving funds off exchanges and into wallets you control.
Most concerns surrounding hacks and security, while well-founded, are also avoidable, even for the non-tech savvy. If the idea of securely storing private keys offline, worrying about best practices regarding digital currency wallets, and keeping abreast of the day-to-day happenings in the crypto space seems overwhelming, investing through a publicly traded blockchain investment vehicle like Block X is an option. Selecting an organization that has a reputable team and is dedicated to conducting extreme due diligence will help to ensure your investment is safe and responsibly managed.
5. Track your gains and losses
Crypto is still in its infancy stages in that it does not yet classify as a real investment. This is because it is a global, decentralized entity not owned by any government. That said, it is still important to track your gains and losses on all crypto investments. This will help in both understanding how your investment is doing and will ensure you’re in a position to pay your fair share in taxes if regulations change.
Darius Eghdami is the CEO of Block X.