What You Need To Know Before Investing in Crypto

Kelly Kigan
January 30, 2022

The year is still fresh and people are looking to explore new investment opportunities. Cryptocurrencies are in people’s minds and they are itching to buy the mighty Bitcoin. However, most people know little about how cryptocurrencies work, and they risk losing their capital if they blindly join the venture. The limited knowledge on Bitcoin, Blockchain, and Cryptocurrencies can be seen in the mainstream media, based on the opinions of TV panelists. Citizen TV Kenya, on 12th January 22, hosted a series of panelists who shared their opinions on Bitcoin. The interview had responses from the panelists explaining why investors are losing their capital in cryptocurrencies, and further explaining why Bitcoin is deemed a supposed scam.

The panelists are describing Bitcoin as some sort of gamble, where if you can afford to lose your capital, then it may be wise to invest in Bitcoin. The panelists further add, if you cannot afford to lose your capital, it is not the right venture for you as an investor. This is simply a layman’s description of gambling. It therefore encourages people who have money to spare to try their luck, while interested parties with little to no capital steer clear from crypto investments. There are a few things you need to know as a prospective crypto investor before venturing into the investment.

Inform Your Investment Decision

It is important to first consider why you are investing in cryptocurrencies. It is the 21st century and there are myriad investment vehicles, a good number that offer stability and less risk compared to digital assets. Do you have a compelling reason to invest in cryptocurrencies, such as owning a specific digital token? Or are you looking to invest in crypto because of the trendiness and craze surrounding digital assets? When dealing with cryptocurrencies, perhaps the biggest challenge by investors is being caught up in the hype¹. This has led to serious losses, scamming and mistakes, that made people deem bitcoin and other cryptocurrencies as Ponzi schemes.

Understand Industry Dynamics

Almost everyone who tried their hand in crypto investments and made a mistake did not take time to get a feel of the industry. A critical rule of investment is to comprehensively understand your investment vehicle. Before you invest in digital currencies, it is essential that you understand the subtleties surrounding digital assets. Take time to learn about digital currencies, how they came to place, their developers, their technologies, and even their offers¹. There are thousands of digital coins available, and for a new investor, it may be wise to first understand the big names including Bitcoin and Ether.

Understanding how the coins work is not enough. You need to extensively explore blockchain technology². Compare the blockchain technology with centralized finance, and decide what works for you.

Basic computer science knowledge is an added advantage when trying to decipher blockchain technology. A coding background makes everything better, as you will innately understand blockchain technology. However, if you lack any of these backgrounds, there are resources that help a layman understand cryptocurrencies and blockchain, through stories, analogies, and examples, in the simplest ways possible. Check out Whiteboard crypto on YouTube for a start, and your crypto investment journey will be easier. Communities such as Sankore further explain the new generation blockchain called NEAR, primarily focusing on the African continent. Sankore offers education, through webinars and physical tours across the continent, explaining the concepts of Blockchain and NEAR in the simplest of ways.

Related: Kenya’s First NEAR-MEET in Mombasa.

Crypto Community

People are joining the crypto space because of the trendy nature of digital assets. The trendy nature of digital assets means that things develop quickly, and it is important to stay updated with every bit of information. This is especially because of the volatility of digital tokens. The value of the tokens is sporadic and you may want to sell before the price dips, or buy when the value is low. It is imperative to plug into a community of crypto enthusiasts and digital currency investors, who constantly communicate and update each other¹. It is in such a community that you will learn about the buzz in the crypto space, and take the necessary measures to protect your digital assets.

FOMO

You’ve probably heard of people who made millions from buying digital tokens, hodling then selling when the prices are high. You also want the millions because everyone is getting a piece of the cake. You feel left out and would want to outdo them in making the profits. This fear of missing out pushes you to invest in the said tokens. However, the price corrects just after you have invested your life savings, and you lose out. This is the story of every single person who suffered Fear Of Missing Out. This especially happens in a bull market with popular cryptocurrencies³. Calculate your steps in such situations to avoid nasty outcomes.

Study White Papers

Satoshi Nakamoto’s white paper proposed a transaction system that does not rely on third parties and prevents double-spending through a peer-to-peer network with a public and immutable record of all transactions. The details in Nakamoto’s whitepaper are enough to convince one of the secure nature of blockchain and bitcoin. When investing in digital tokens, do not just rely on the hype on the internet and persuasion from YouTube experts. Instead, get the specifics of the digital currency through studying the project’s white paper⁴. The whitepaper should contain all the critical data before you consider investing your money.

Finally, understand that digital assets are relatively new, therefore they form a primarily speculative investment vehicle. There are winners and losers, and for every overnight digital asset millionaire, there are losers who paid the price to make the millionaire. Choosing this investment vehicle means choosing extremely high risk, or maybe potentially ungodly returns. The best thing to do before investing is to educate yourself with comprehensive crypto and blockchain knowledge. Get a feel of the industry, then make an informed investment decision.

References

[1]. What You Must Know Before Investing in Cryptocurrency. (Investopedia, August 2021).

[2]. These are the three things you need to know before investing in cryptocurrency. (Euronews.next, August 2021).

[3]. Nine Things to Know Before Investing in Cryptocurrency (Coinmarketcap, September 2021).

[4]. The role of whitepapers in the crypto asset market. (Ashurst, October 2020).

*Editor’s note

Sankore 2.0 is an Africa-focused community integrating the NEAR blockchain with projects and solutions conceived and built by local developers in Kenya. As noted in the content of this blog, Sankore 2.0 seeks to promote the development of Web3 products in Nairobi — for Kenya and for Africa as a whole

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