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3 things to know about cryptocurrencies before investing

The astronomic rise in the value of Bitcoin is attractive to investors, but just like with any type of investing, learn to tread carefully.

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By now, you’ve undoubtedly heard about Bitcoin and other cryptocurrencies thanks to a sudden gold rush that seems to be happening in the space. Of course, such mania spreads exponentially, with more and more investors coming aboard with each passing day. But, when it comes to crypto, there’s a lot more at play than most investments. In fact, it feels like most of us need a crash course in cryptocurrency just to understand what terms like “blockchain” even mean. With that in mind, outside of those basics, here are three things to know before investing in Bitcoin:

Volatility is the name of the game

Headlines boasting enormous new highs for Bitcoin have certainly served to get the public’s attention and create a surge of interest in cryptocurrency. Unfortunately, they’ve also led some to jump head first into an investment they actually know very little about. Some anecdotes even suggest people have mortgaged their homes in order to buy into Bitcoin. Needless to say, this is a major mistake.

Although it’s true that Bitcoin and other cryptocurrencies have been experiencing massive jumps, they’ve also seen large pullbacks as of late, as well as crashes in the past. This is a type of volatility that few investors are truly prepared for. So while it’s good advice to never invest anything you can’t afford to lose, this is especially true when it comes to cryptocurrencies.

There’s more than Bitcoin

In the minds of many, “Bitcoin” and “cryptocurrency” are practically synonymous. There’s good reason for that considering Bitcoin was the first and is the largest of crypto coins. However, it’s far from the only one. Depending on whom you talk to, the real coin to watch could be Ether (Ethereum), Litecoin, a Bitcoin fork like Bitcoin Cash, or some other coin entirely—perhaps one that has yet to even debut. Therefore, if you’re serious about investing in crypto, it may be worth looking into other currencies beyond Bitcoin.

Bitcoin

Bitcoin is the most popular cryptocurrency but there are others. (Source)

You can invest in crypto without investing in currency

One thing many investors overlook is that there are now opportunities in cryptocurrencies outside of the coins themselves. Silicon Valley seems to be catching onto that; there’s been a rush by venture capital firms to fund startups that will help make crypto accessible to the masses (or at least the institutions).

Meanwhile, the CBOE recently began offering Bitcoin futures, with CME and Nasdaq to follow. As a result, there are already ways to bet on the promise of cryptocurrencies without owning coin. And there will likely be many more ways in the coming months.

There’s no doubt that cryptocurrency will have an effect on technology and economics in the future—even if the size of those impacts is up for debate. Because of this, there are reasons to be excited about the space and want to invest. That said, instead of getting carried away with the hype, be sure to take the time to understand Bitcoin and other cryptocurrencies, contemplate the risk, and perhaps even pursue indirect investments before buying your first coins.

DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.

Kyle Burbank is a writer for several personal finance sites including Dyer News where he has a weekly column. He is also the author of "The E-Ticket Life", which is about his passion for the Disney Parks. It is available on Amazon.

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