Can you really make money with cryptocurrencies?
What do Bill Gates, Serena Williams and Kanye West have in common?
Aside from their stardom and success in their respective fields, along with a few other big names, they have invested in Bitcoin. Cryptocurrencies are the latest craze in the world of financial products and have sparked the interest of individuals, HNIs (High Net Worth Individuals), and companies alike, and understandably so. Who wouldn’t be interested if the average return over the past 6 years is 111 times the original investment?
However, there is a fair amount of skepticism when it comes to investing in cryptocurrencies. The critics have valid reasons for this. Two major setbacks of cryptocurrencies are:
i) Extremely high-risk
While the returns have been beyond outstanding, cryptocurrencies stand testimony to the age-old investment principle of ‘high-risk, high return’. For expecting such splendid multiplications in value, an investor is exposed to an abnormally high level of market risk, which acts as a deterrent, especially when the investor is not sufficiently diversified. Top-performers like Bitcoin have seen an 83% drop in a single year, which is as good as throwing your money into the drain.
ii) Lack of regulation
Unlike most other financial instruments, cryptocurrencies are subject to almost no regulations. Investor protection is very weak. In case a government or a broader collective decides not to recognize cryptocurrencies, they can lose their value overnight. Since cryptocurrencies are still very new, they are yet to be recognized as a valid financial product by most entities, sovereigns, and regulators.
So, how can you make money from cryptocurrencies?
After becoming informed of the downsides, if you have the risk-appetite and hunger for high returns, here are a few principles to follow:
- Start with a small amount.
- Use a reliable source for buying and selling.
- Do a basic background check to ensure that there are no legal issues around your chosen cryptocurrency.
- Go through the price charts to get an idea of when to buy a cryptocurrency.
- Ensure your financial stability even if 100% of your investments become a loss.
By following these principles, you stand a better chance of making money with cryptocurrencies.
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