It took less than a decade for cryptocurrency to go from a deeply obscure cypherpunk experiment to a new class of investment that is completely rewriting the rules of finance, banking, and monetary theory. Bitcoin and its descendants — Ethereum, Ripple, Litecoin, and the rest — have created a market currently valued at over $230 billion, with people all over the world investing in this entirely new way to store and send value. All that investment comes with some some huge risks, however. If you’re new to crypto — or investing in general — you should know what you’re getting into.
In this post, we’re taking a look at five cryptocurrency investment rules every would-be bitcoin billionaire should know.
1. Cryptocurrency is an extremely risky investment. Part of the appeal of bitcoin and other cryptocurrencies is the volatility of the market. An early investment of a few hundred bucks can, seemingly out of nowhere, suddenly make you a millionaire. It’s an intoxicating idea, isn’t it? But for those who bought their first bitcoin during the $20,000 highs of late 2017, only to see it crash to $3,200 a year later, crypto has been an absolutely terrible investment. While the general consensus may be that the crypto market still has a lot of room to grow, there’s no guarantee that this will happen.
2. Never invest more than you’re willing to lose. If you’re going to invest in something as risky as cryptocurrency, it’s important to be realistic about how things could play out in a worst-case scenario. The crypto casino is open 24/7, and it’s entirely possible that you will go to bed wealthy and wake up a pauper.
3. Be skeptical of the hype. Talk is cheap, and there are plenty of people in the cryptocurrency community who are great at talking up bad investments. How many “bitcoin killer” alt-coins and ICOs raked in millions of dollars from investors, only to evaporate months later? Before you hand over your money — or your BTC or ETH for a token pre-sale — do your research.
4. Past performance is no guarantee of future results. On June 15th, 2013, bitcoin was worth $100. By December of that year, it was worth $1,000. That’s a 1,000% increase. Four years later, in December of 2017, bitcoin was worth $20,000. That’s a 2,000% increase from the previous all-time high, and a 19,900% increase from mid-2013. Does that mean that bitcoin’s price will always grow exponentially, reaching millions of dollars per BTC in just a few years? Of course not. There’s a reasonable chance that it won’t even reach a high of $20,000 again. This doesn’t mean that cryptocurrency won’t see explosive, exponential growth in the future, but it is by no means guaranteed.
5. Protect your investments. While the cryptocurrencies are almost certainly the most secure form of money ever created, that doesn’t mean that your personal cryptocurrency wallet is secure. While a random hacker probably can’t break the public-key cryptography behind the blockchain without a quantum computer and a few billion years, they might just be able to brute-force your bitcoin wallet’s password. The only person who can protect your cryptocurrency investment is you, so be vigilant.
One final rule: Have fun! Yes, cryptocurrency investment comes with plenty of risks, but that doesn’t mean that you can’t have a blast watching your investments ride that crazy rollercoaster into the future of money.