What You Should Know Before Buying Your First Cryptocurrency

What You Should Know Before Buying Your First Cryptocurrency

Cryptocurrencies have taken over the internet and it is what is in vogue at every turn. It seems as if everyone is buying and selling crypto now, especially on popular social media platforms. And it’s no surprise since their number has gone up from 66 in 2013 to more than 6,800 in 2020, according to Statista.

Many industries are now pivoting to this exciting new technology. For instance, it’s now possible to place bets on MLB lines using Bitcoin or other popular cryptocurrencies. It’s certainly tempting to give it a try. So, before jumping on your first coin, consider these five things.

What are you buying?

Cryptocurrency is simply digital money that doesn’t fall under a centralized entity. You can buy things with cryptocurrency, but you need a wallet to get started. Transactions are peer-to-peer. Therefore, there is no centralized intermediary between the seller and buyer.

The cryptocurrency market is volatile. As a result, many people looking to invest want quick gains. However, successful crypto investment is not straightforward. The market is prone to speculation, and the coin prices depend on the supply and demand since most of the coins don’t have analog backing.

Cryptocurrencies are a relatively new concept; therefore, scammers play off people’s lack of knowledge about the processes associated with the system to make quick bucks for themselves. A U.S. Federal Trade Commission report showed that between October 2020 to May 2021, crypto fraudsters successfully scammed consumers of more than $80 million.

As a result, it’s vital to dig into any cryptocurrency before buying it thoroughly. Ensure that you involve your financial advisor before you jump into it.

Is cryptocurrency the right choice of investment?

Thanks to institutional and retail investors’ acceptance, the value of cryptocurrencies is rising. Most finance experts warn that it is more likely that you lose all your money when you invest in crypto. However, it depends on many factors, but you should consider that possibility before risking your hard-earned money in these markets.

How can you spot the scams from legitimate coins when you want to buy?

You will find thousands of cryptocurrencies available on the blockchain. Therefore, the question of how to determine the legitimate ones arises. Some cryptocurrency creators might even do a rug pull. They make a cryptocurrency and market it ferociously, promising attractive terms and selling a captivating story behind it. 

Once the coin gets enough investors, these creators then suck the liquidity pool dry, and as a result, the price falls to zero. So, how can you avoid these scams? If it sounds too good to be true, it most likely is. Therefore, you should avoid it. So, learn all you can about the coin you want to buy. Or better find answers from professionals. 

They Are Not Regulated

Remember to be vigilant when buying cryptocurrencies. Undoubtedly, it is relatively easy to buy cryptocurrency, but it’s just as easy to lose money. And in case you lose your money, did you buy it on a regulated exchange or wallet platform?

A good instance is the 2014 Mt. Gox case. It is a Japanese exchange that collapsed after hackers stole around $460 million from it, and at the time, it was the biggest exchange for bitcoin globally. These types of cases are why regulation is so vital.

So, be sure to back up your crypto wallet so that there is a possibility to restore it later on if something goes wrong. 

Remember, cryptocurrencies are generally not recognized as legal tender.

Traditional fiat currencies like dollars, yuan, pounds, etc., are government-created legal tenders backed by an institution. And that’s the issue with fiat. People want money that doesn’t involve the government. However, governments regulate banking to show that any money you claim to own is genuine, and if the government doesn’t recognize it, it’s not “real” or considered a legal tender. 

Our Verdict

The cryptocurrency market is growing. However, the related risks and frauds are also rising. You’ve likely heard or read many success stories from people that got rich from crypto. But you shouldn’t let dreams of success blind you. Cryptocurrencies come in different versions, so you should prepare extensively before you commit if you don’t want to risk too much. 

Take a good look at the market and cryptocurrencies you want, learn about the creators, mark and observe trade metrics, and talk to experts. With the market growing, several things can change. It might stabilize or even fall under some kind of regulation. However, for now, only buy what you know.

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