Taking a punt on cryptocurrencies? Watch these risks before putting your hard-earned money

This is probably an obsession of the highest order. Despite the extreme volatility intrinsic to their nature, regulatory barriers, scams, questions raised by fund managers globally over their future as an asset class, and other factors, the interest cryptocurrencies have continued to garner globally is almost unparalleled. Otherwise, it sounds crazy for something super speculative, digital-only, and just around a decade old, to have a market cap more than that of legacy financial services firms such as Visa, JPMorgan Chase, Mastercard, and more, as per data available at CompaniesMarketCap. “It’s a store of value like gold that is more religion than solution to any problem,” the billionaire entrepreneur Mark Cuban had told Forbes in December last year. While it is true for one to become filthy rich through Bitcoin and other cryptocurrencies, it is also not surprising if one loses all his/her money. So what are the key risks attached to investments in cryptos before you expect a possible windfall?

Varying Strategies — Strategies to make money may vary from buying and holding cryptocurrencies which represent enterprise solution platforms and promise robust adoption to various use cases in business and cryptocurrencies which are popular and have a large following backed by some fundamentals which is lending them momentum, Ashish Mehta, Co-founder at crypto trading platform DigitX told Financial Express Online.

Detailed Study — Among important pointers to look at is to have a detailed study into the projects to assess their future value, follow communities, and growth of community participants across social media platforms like Twitter, Reddit, Medium, etc., said Mehta. Moreover, tracking and investing as per the chatter flow regarding cryptocurrencies in social media and various community circles related to cryptocurrency investments, etc., is also important.

Investing and Dollar Cost Averaging (DCA) – The crypto market is highly volatile and hence investors should only invest money that they can afford to lose. Do not invest with debts and do not engage in leveraged positions. While investing, use the DCA method of spreading investments over multiple weeks/months to ensure you get a better entry pricing (on average), Vikram Subburaj, Co-Founder and CEO, Giottus Cryptocurrency Exchange told Financial Express Online.

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Your Portfolio – There are 100s of coins to invest in within the crypto ecosystem. Not many survive a four-year cycle though. It is always prudent to start with the high caps (top 20 coins with high market capitalization like Bitcoin, Ethereum, etc.), Subburaj added. In fact, newcomers should only invest in Bitcoin and Ethereum at the start before understanding the market cycle and diversifying investments into other coins/tokens, he said. The top two currently have more than a 60 per cent share of the cryptocurrency market.

Don’t be a Trader – Trading carries high risk with only 10 per cent of professional traders estimated to profit from frequent trades. Minimize your trades to the extent possible, said Subburaj. It also implies that you do not buy on FOMO (fear of missing out) or sell on FUD (fear, uncertainty, and doubt).

HODL with a plan – HODL (Hold your investments) is a popular advice given to all crypto newbies. While it is always good to have a longer-term view of your investments, investors should take some profits (and initial capital) along the way. This will feed a robust cycle of growth and profit for the investor.

The suggestions/recommendations around cryptocurrencies in this story are by the respective commentator. Financial Express Online does not bear any responsibility for their advice. Please consult your financial advisor before dealing/investing in cryptocurrencies.