A few moments ago, one of our writers got a message on his Telegram saying that if he joins a particular channel, he could make millions by trading in crypto. We are sure that this is a common site for someone who is a part of any crypto community. Believe it or not, these businesses are running because people fall for them. We are not saying it is wrong, just that there is too much noise around ‘How to invest in Cryptocurrency‘. However, almost nobody asks if they should invest in cryptocurrency or not. Which is why, Nas Academy is to your rescue. Today, we shall talk about who should invest in cryptocurrency.
Let us face it, Cryptocurrency is not for everyone. No, we are not talking Blockchain. This technology is an extremely fundamental and 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 detailed blogpost here. To unfold the answer to this underrated question, let us first understand why should one reconsider investing in crypto.
What are The Risks of Investing in Crypto?
Yes. It is not happy money which is going to make you rich overnight. There are some risks involved in cryptocurrencies. Let us understand the same:
A. Regulations:
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 US, this body is SEC, in India it is called SEBI etc.
Not only these bodies defend your money, they also prevent malpractices in the market.
Let us come 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.
B. Custody of Assets:
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. Let us talk about how 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 going back.
A lot of BTC is lost in this manner. So if you do not trust yourself with passwords, better rethink your crypto investment strategy.
C. Volatility:
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 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 than the comfort levels of many.
Who Should NOT Invest in Cryptocurrency?
Before coming to the framework of evaluating weather or not you should invest in cryptocurrency, let us first talk about a few people who should definitely stay away from this market.
A. Cool Factor:
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 no body cares if you lose it. If you are solely doing it for the sake of satisfying your ego, we have a bad news for you.
B. Peer Pressure:
Are you investing because your friend asked you to? Oh, may be because your friend’s friend made a 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!
C. FOMO:
Once again, it is a sorrow 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 an access to a 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 a news. So it is better to use your own grey matter and not get caught up in the FOMO hype.
Who Should Invest in Cryptocurrency?
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.
Q1: Can you afford to lose your entire crypto investment?
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 fine day? If that is going to give your heart and mind a tough time, we need to revaluate.
Q2: How do you rate yourself in Tech-savviness from a scale of 1-10. Are you willing to learn how to keep your crypto safe?
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, let us take the case of Metamask.
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 etc? 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.
Q3: Are you ready to spend time every single day researching cryptos and monitoring your portfolio?
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. Without going too much into the details, Solana was much faster and cheaper than Ethereum (Biggest player right now).
As a result, price of $SOL was rallying like crazy. But in the past 3 months, Solana was shit down thrice 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.
Q4: Can you wrap your head around the fact that crypto prices depend more on tweets by billionaires and less on logic and economics?
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.
Q5: Are you ready to fundamentally analyze Cryptos?
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.
What Next?
The moment of truth is here. If you answered ‘yes‘ to all of the above questions, let us talk about how to take it further. But if your answer was ‘no‘ to either of of these questions, its time to rethink.
For the former category, welcome aboard. Wagmi.
Got questions? Want to take it to the next level? Reach out to me using your preferred platform from the links below
Until next time..
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