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Тhe best time to buy was 10 years ago, the 2nd best time to buy was yesterday.
This is a common situation that you will probably encounter soon in your day to day life; you could be talking about investments with friends and colleagues and the moment you start talking about digital currencies, you may face some mixed reactions.
There is general concern among seasoned investors that anyone who isn’t already knowledgeable in stock markets and commodity exchanges should not dabble with cryptocurrencies – it’s too risky.
Let’s set the record straight – cryptocurrencies can be an investment and they can be profitable.
While cryptocurrencies were initially thought to be the currency of the future, it is more of an investment nowadays in hopes that it will ultimately be worth more than what it initially costs.
In other words, cryptocurrencies may give you a better (which is understated) ROI over traditional stock market investing.
Here’s the catch; while knowing the basics of investing is nice, you don’t need to have that knowledge for cryptocurrencies. Despite its recent boom, the industry is still in its infancy stage and we should look forward to the next 10, 20 years instead of tomorrow.
Don’t worry though; you’re in safe hands. The cryptocurrency community is a large network of fellow investors who are more than happy to help you with your cryptocurrency questions, like us!
In today’s post, we’re going to cover the basics of identifying and investing in profitable cryptocurrencies for new investors.
Is cryptocurrency a bubble?
Before we move on to cryptocurrencies, let’s rewind to a time when the hype over investing was this big (arguably bigger).
During the days of the dotcom boom in the late 90s, IPO (initial public offering) was introduced to the public as another channel for investments. Investors could toss money into any IPO and be guaranteed superb returns almost every time. Huge early gains by companies further fueled the hype but we all know what happened a few years later when the bubble burst.
With the exception of some companies like Amazon and eBay, most IPOs went bust after all-time highs were reached. The bubble burst served as a reminder to investors that nothing in life especially in investing is fail-safe. Over 20 years later, the new ‘bubble’, as quoted by financial experts, came. Working very similarly to the IPO craze of the 90s, cryptocurrencies began to offer ICOs (initial coin offerings) which garnered interest from major publications early this year.
Instead of raising money the traditional way, startups raise money by offering tokens or digital coins which fund the firm’s operations. This means startups do not need to rely on complicated funding rounds and pitches to secure investments for their ventures.
Investors who invest in these ICOs bank in the hope that the token rises in value over time. Many of these ICO’s are offered at fractions of a penny, in hopes of rising exponential in value down the road.
For example, if you’d have invested $1,000 in Ethereum during its ICO, you would have had at least a million dollars with you right now in terms of value.
Speaking of Ethereum, it was the platform itself that showed this new form of startup investing to the world. An ICO works similarly to a crowdfunding campaign; think of it as a Kickstarter for start-ups.
An ICO allows projects to raise money for development, whilst simultaneously providing a token to backers. The tokens resemble shares or stocks in a traditional stock market.
While ICOs are exploding in popularity, they are still in a grey area.
They are unregulated by the authorities and is therefore not guaranteed to actually provide good returns to investors. Additionally, tokens are not considered securities which are a problem with authorities like the SEC.
There is no guarantee that the development team will deliver their promises and there is also no guarantee that your investments are secure down the road.
However, no investment, even in the stock market, is a sure thing. ICOs are a new industry venture and have many unique risks that make them different (and potentially more profitable) from an IPO you will find on the stock market.
Is it speculative?
there is no doubt that speculation is strong in the cryptocurrency scene among investors.
Based on the huge amounts of money that have been pouring into ICOs this year (over $1bn in less than 6 months), there is no doubt that speculation is strong in the cryptocurrency scene among investors.
Despite news of early investors turning thousands of dollars into millions(!) in under a year, the truth is that every cryptocurrency (including established ones like Bitcoin and Ethereum) is still highly speculative.
While the total market cap of every cryptocurrency in existence is just about $150 billion dollars, all of that has happened in a rapid rise which is also known as a bull run in less than a year.
However, we’ve mentioned that the crypto scene is still young. Despite its abnormal rise, we don’t know for sure whether this is acceptable or not for digital currencies. Bitcoin famously crashed in 2013 and recently in June 2017.
It has bounced back to reach an all-time high value of $3,200 – something that is impossible to achieve for shares in the stock market.
Hence, no one really knows what’s normal or not in the cryptocurrency scene. It’s best, however, to take a more conservative approach if you don’t want to lose your funds quickly.
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