A lot of new investors in the market have been investing in the cryptocurrency market to create alternative wealth. Investing in cryptocurrency comes with its own perils that one must look into.
Post the pandemic, everyone is looking for passive income streams. While having passive streams of income is good, it is important to understand how to set it up. A lot of new investors in the market have been investing in the cryptocurrency market to create alternative wealth. Investing in cryptocurrency comes with its own perils that one must look into.
Recommended ArticlesView All
New Locker Rules — Here's why the RBI has gone overboard
Jan 28, 2023 IST5 Min(s) Read
Meet Padma Shri Awardee Guru K Kalyanasundaram Pillai, the man who is keeping an ancient tradition alive
Jan 27, 2023 IST3 Min(s) Read
This is how the new draft IT rules propose to make online gaming safe
Jan 27, 2023 IST4 Min(s) Read
Rs 11 lakh crore market cap lost in biggest two-day fall in four months
Jan 27, 2023 IST3 Min(s) Read
Here are 5 things to consider when you start investing in cryptocurrency:
1. Portfolio allocation for cryptocurrency
While investing in cryptocurrency one of the most important things to consider is how much to invest. Over-investing in any asset class is considered bad. Now we must also understand that cryptocurrency as an asset class is extremely volatile. The market is open always and the prices fluctuate depending on global demand and supply factors. Cryptocurrency as an asset class is slightly riskier than other investment assets such as mutual fund, stock market, gold and real estate.
Most experts believe that investors should not have an allocation of more than 5 percent of their total portfolio in cryptocurrency. This ensures you have a high upside profit while limiting your downward risk.
2. Choosing the right project
There are more than 11,000 crypto projects that are listed now on coinmarketcap. Out of the 11,000 tokens, only a handful of them are worth investing in. Here are a few things to check while finding a good crypto project
- The most important thing to look at is the team behind the project, are they seasoned entrepreneurs, are they building a company with a long term view or are they just here to make a quick buck, have they worked on some projects in the past, do they have good social media profiles etc. Before understanding what the project solves it is very important to look at the team behind the project. The next important element to look at is the project itself through its white paper. Are they solving a big problem? Is blockchain going to disrupt the industry? Do they have early adoption with some users etc. Most of the time we see that projects add blockchain layer to their company without any significant use case. Better to stay away from such projects
3. Gas/ Network fees
◦ Every time you transact on a blockchain network, more often than not you would have come across network fees. These are the fees taken from every user to facilitate their transaction which is usually used to keep the blockchain running smoothly. Now, it is important to look at the gas fee as a high gas fee might eat into your capital. We have seen recently that the gas fees for ethereum blockchain have been on the rise and it’s more expensive to transfer ethereum today as compared to 5 years ago. To avoid losing out too much on gas fee, try to batch your transactions in bulk and send it in one go rather than doing multiple transactions
4. Stay away from FOMO (Fear of Missing Out)
The crypto market is filled with hype. Since it is a global market, we have always seen a new trend happening every month. We saw this with the dogecoin hype with Elon musk, then the bitcoin hype again with Elon Musk, we then came across NFTs that became a rage and weirdly so we also observed a non-existent coin call Shiba Inu gathering hype from nowhere. What people don’t tell you is that once the hype is over and the dust settles, you would have lost a lot of money if you had invested in the hype at the peak. So it’s best to do your own research and invest in the project that you believe in for a long period of time and not fall prey to these hype cycles.
5. Stay away from scams
The crypto market is not a regulated market and has no controlling body over it. Due to this, investor protection is not a big priority in that space. It is important for every investor to understand the project, do research about the team and then consider investing in the project. Scams are quite common in the crypto space, if anything seems too good to be true then stay away from it.
Cryptocurrency is risky and highly volatile but a smart knowledge investor who does good due diligence will be able to reduce his risk and invest wisely.
The author, Shashank Udupa, is Co- founder and CFO at Scenes by Avalon. The views expressed are personal
(Edited by : Anshul)