Cryptocurrency is a brand-new investment avenue that attracted many investors. However, like any other investment, people must understand the subject very well. They should evaluate the risk tolerance and assess if the wild price rides suit them.
Founder of NRP Capitals and a chartered accountant Rishabh Parakh, was a guest earlier this week on the weekly personal finance podcast. Like other advisors, Parakh has been getting many questions from his clients on cryptocurrencies.
Here’s all the information that investors have to know before deciding to invest in cryptocurrencies.
Is Cryptocurrency Investment or A Currency?
A currency is basically regulated and stable. It should allow you to buy services and goods. Cryptocurrencies are volatile and do not have a store of value. For example, in India, you cannot buy any item, such as a laptop or headphones with crypto, but it is more of an asset. Therefore, cryptocurrency is not considered a currency. Until it becomes an acceptable currency, it remains something similar to gold that used to be for the older generations. So, for now, it resembles an asset, not an actual currency.
What Type of Investors Is Interested in Cryptocurrencies?
From the beginning, mainly youngsters were curious about Bitcoin and similar assets. But now, everybody wants to know more about this industry, so there are people from various age categories and income groups.
How Much Should We Invest?
Some people suggest 10,000 in Dogecoin because they have heard several success stories. However, unless you have a solid reason and logic to invest in a cryptocurrency and understand the technology behind that currency, it is like gambling in the casino. It is not investing.
Why are cryptocurrencies volatile? Why is that if Elon Musk tweets something, is enough to scare all cryptocurrencies?
Some factors control Stock markets` rise and fall. Besides, stocks are open for about 7 hours a day, and only during this period can investors buy and sell their shares. Among a few other things, the process of buying and selling takes the markets up and down.
However, a crypto market never stops working. It is open 365 days a year and 24/7. Besides, it’s considered a global market. You can buy a Bitcoin in Austria, and someone in the Uk would also be buying or selling the same Bitcoin.
Unless you have money to lose, do not invest more than 2 percent of your overall salary in cryptocurrencies.