When should you buy crypto?

Digital, highly publicised, and the favourite of celebrities, billionaires, and celebrity billionaires – cryptocurrencies can be a tempting investment prospect. But given the well-publicised peaks and crashes, it can be difficult to know when to buy and the potential risks that are involved with the fast-moving and risky world of crypto investments.

Read on to learn more about cryptocurrencies when to buy them.

What is cryptocurrency?

Cryptocurrencies are digital tokens, coins, and assets that can theoretically be used as mediums of exchange. These are created by cryptography – a process that secures the creation of a digital asset through the concept of a blockchain. This is a digital ledger that everyone has access to but cannot be adjusted without majority consensus.

The most commonly known (and traded) cryptocurrency is Bitcoin, but there are many other options available. There is Ethereum, which offers a development platform for creators; there are novelty coins such as Dogecoin, and even ‘stablecoins’ which are pegged against the US dollar or the Euro.

We are currently in the third generation of cryptocurrencies. There has been a rapid evolution in a short amount of time within the sector, addressing old problems such as scalability and the environmental risks of crypto’s well publicised energy usage. As an unregulated asset, crypto firms can react quickly to any market issues, which is an appealing quality for some investors. However, it can also place some investors at risk of major losses due to fraud or volatility.

Crypto volatility

For many investors, cryptocurrency’s volatility is its defining characteristic. Cryptocurrency markets crash regularly and are known for dipping from dizzying highs to gut-churning lows.

This famously saw Bitcoin begin January 2017 at $998.08 per token and close out at $13,406.56 a year later, marking a 1243.2 per cent increase. However, this can go the other way. On November 8 2021, Ethereum hit a high of $4,811.70, only to plummet to $1940.55 by 1 June 2022, marking a drop of close to 60 per cent in just over six months.

Because cryptocurrency investments are unregulated, once your money is gone, there are no channels to pass through to recoup your losses. Backing a winner crypto that tanks, being scammed, or making a mis-click can carry the same penalty. Many investors refer to it as the Wild West with good reason.

But this volatility can also be used to make significant profits. Newspapers are full of stories about crypto millionaires, those haunted by potential losses, and what could have been if token holders knew what their investments would eventually be worth.

It’s important to understand what influences the market and some key factors before buying in to the sector.

What should I know before investing?

Lack of regulation

Cryptocurrency is decentralised. This means that there is no official bank or government backing behind it, and no safety net for loss-making investors.

Beware of influencers

Many leading cryptocurrencies are frequently accused of stock manipulation, with Elon Musk being repeatedly accused of manipulating the market through his tweets. Given the nature of the market, tracking who is commenting on Twitter and through social media is essential. Many millionaires and billionaires are bullish on the sector. They have the capital to be able to allocate to a high-risk high-reward venture, which should send alarm bells ringing for those of us without money to burn.

Check your security

Cryptocurrency heists are, sadly, very common. By April 2022 over $1.2 billion (bn) had been stolen from distributed finance (DeFi) platforms alone. That doesn’t account for hackers that look for unsecured wallets, execute scams, or socially engineer investors to give away access to their wallet. Make sure your money is being kept in a secure wallet, run by a reliable, expert company and keep your password to yourself.

What should I ask before investing?

Do I understand the technology?

Modern crypto payments are tied into several different platforms. If you are considering making an investment, it’s important to understand the ecosystem that your token operates in, how it relates with other competing or complementary currencies, and whether there are better alternatives for your money.

Is my timing correct?

Cryptocurrencies regularly rely on software updates to their protocols for reasons such as increased security, and even ‘forking’ the creation of new currencies as seen with Ethereum in July 2016 which led to the (genuinely unironic) creation of Ethereum Classic with its own blockchain.

Can I afford to lose my money?

When it comes to cryptocurrency, there are no hard and fast guarantees. As a general rule, your crypto investments should form part of a balanced portfolio which has been well thought out and properly diversified. Work within your own personal risk threshold, and only invest money you can afford to lose. Any unregulated investment comes with the risk that you could lose everything you invest . Even if that hasn’t happened to you so far, the risk remains.

While tools and platforms may make it easier to invest than ever before, it’s always important to remain disciplined, informed and responsible.