5 Point Checklist for Beginners Before Buying Cryptocurrencies
Cryptocurrencies are emerging as an alternative form of investment despite the risks involved, like high price volatility and lack of regulations. The emergence of different digital assets and the subsequent growth in value continue to attract investors. However, the potential of higher returns doesn’t necessarily mean cryptocurrencies are for everyone. Starters should understand the risks involved, have a strategy, and determine storage platforms. Here is a checklist for beginners before spending money on cryptocurrency.
Understand Crypto-Related Risks
All investments carry risks, but for crypto, it is heightened. The risks emanate from the high market swings, which means you can either gain or make losses in minutes. Besides volatility, you should be aware of the following risks.
Unregulated
Cryptocurrency lacks standard regulations globally; therefore, you will be operating in the world of the unknown. However, several jurisdictions are working towards enacting necessary laws.
Susceptible to Hacking
Bad actors are taking advantage of the lack of regulation and weak systems to hack crypto exchanges and wallets. Do your due diligence when selecting an entity to work with. You should have a plan on how to store your assets after buying on established platforms like Netcoins.
Research the Market
Cryptocurrency conversations are all over, and it can be challenging to settle for the right asset. Like the rest of the market, there are several crypto investments to note. Before investing, find out if the crypto at hand has a team behind it, open-source code, utility, and to some extent, the proof of concept. Consider not going for common assets like Bitcoin since other lesser digital assets might be of value.
Determine How Much You Can Lose
Money invested in crypto should be treated as a loss, although it is not a guarantee. Don’t invest your emergency savings. Investing all your money might force you to sell your crypto holdings at a loss. Additionally, you need to understand the responsibility that comes with crypto investments. To minimize risks, learn how you can diversify your portfolio. Diversifying your investment will expose you to more crypto assets in the long run and also will allow you to gain profit from the overall growth in the crypto market. Apart from this strategy, many beginners start by investing in cheap cryptocurrencies such as XRP, Doge, Stellar, Shiba Inu, and many more because this gives them the opportunity to have a safety net to survive the crypto market’s extreme volatility.
Your Storage Option
Besides selecting the right cryptocurrency, you need to learn about the available storage options. Experienced crypto investors usually have options, but beginners can get challenged in deciding on the appropriate wallet. Below are the standard crypto storage options:
Hot Wallet
They are easily accessible online and are convenient for most users. Hot wallets can be accessed through mobile and desktop apps. Although they are beginner-friendly, hot wallets are susceptible to hacking.
Cold Wallet
They are the most secure crypto storage option and can be accessed offline. The wallet is operated by connecting to a computer through a USB cable.
Paper Wallet
The wallet stores the cryptocurrency on paper. As an investor, you will be required to write the crypto keys on paper or generated by special software. This option is near impossible from hacking.
Develop a Strategy
Crypto investments also require a strategy. You need to track your gains and losses and determine when to withdraw profits. Tracking these metrics allows you to monitor your portfolio’s performance. At the same time, learn more about paying taxes on crypto gains.
Endnote
It might seem confusing when attempting to enter the crypto market. However, cryptocurrencies can be an ideal financial product when you are armed with sufficient knowledge. For beginners, it is vital to learn more about the risks involved and how the general market works.
