Investing | Article

Should You Be Tempted By The Rush To Invest In Cryptocurrency?

by The Simple Sum Team | 2 Mar 2021 | 4 mins read

It’s no wonder that with Bitcoin’s meteoric rise towards a value of US$50,000 per Bitcoin, the slew of prospective investors continues to grow at an even higher rate.

The stories of investors who got in at a few dollars per coin and are now millionaires continue to grow and tempt the masses into wanting to throw their life savings to chase the same dream.

What should you know before assigning some of your portfolio to cryptocurrency? What is the value of a Bitcoin and are there other cryptocurrencies that may follow the same parabolic rise? Let’s try and answer these questions.

What is cryptocurrency?

The first thing you should consider before making any investment is to know what you’re getting yourself into.

The world of blockchain (the concept behind cryptocurrency) is still in its infancy and has potentially world-changing technology driving it.

Cryptocurrency is a digital medium of exchange that is encrypted and is decentralised, meaning that unlike fiat money (RM, USD, etc.), it is not managed by any one authority (i.e., banks).

Bitcoin was the very first form of cryptocurrency and its creator Satoshi Nakamoto describes it as “An electronic payment system based on cryptographic proof instead of trust.”

The blockchain technology behind cryptocurrency is now being used in many different forms, branching out from the initial vision as described by Nakamoto.

What is the value of Bitcoin and other cryptocurrencies?

Bitcoin and cryptocurrencies have value because people believe that it has value. It’s almost like gold.

When we speak of other cryptocurrencies, the thousands of projects out there have varying values due to factors such as scarcity (how many coins are produced and in circulation); the perceived value of the project; and the scale of the community involved in the cryptocurrency.

The top 100 rank of cryptocurrencies by market cap reveals the different cryptocurrencies, its values, and its uses.

Some provide solutions to money remittance, some are decentralised finance solutions and others are using blockchain technology to provide innovative solutions to some of today’s problems.

Doing your own research into the types of cryptocurrencies available and their potential value is definitely something all prospective investors should look into.

Are cryptocurrencies a good investment?

The value of cryptocurrencies may rise over time but it is still uncertain whether the rise is linked to speculation rather than tangible output.

Bitcoin for example had its amazing rise to almost US$50,000 at the time of writing, but its had its own share of ups and downs.

Bitcoin traded at close to US$20,000 in 2017 before dropping to US$3,000 just a year later. That rise from $3,000 in 2018 to $50,000 was spectacular but it is important to consider that the price could drop just as quickly.

It would be wise to only allocate a small proportion of your portfolio to these investments due to the great volatility involved. As they say, the higher the risk, the higher the reward.

Spending a large portion on your savings on something that could tank over 80% in a year (or rise) is a risk that you will have to weigh for yourself.

What else do I need to know?

Rushing into high risk investments should be done with extreme caution and care. For every crypto millionaire, there’s a crypto casualty.

Online forums, discussion groups, and YouTube tutorials are great places to learn cryptocurrency investors. They are also great spaces to gather opinions on the next possible smart bets on coins that may make a great leap in value.

If you’re ready to start investing in crypto, head to this link provided by the Securities Commission Malaysia that identifies the list of registered operators for Digital Asset Exchanges.

That said, the old adage that you should only invest money that you can afford to lose is especially true when it comes to cryptocurrency. Do your research, make informed decisions, and don’t give in to FOMO.