Cryptocurrency is the most popular topic across barroom conversations and media all around the world today. The major discussion in the space, having started with Bitcoin, has now evolved into an entire discourse around various different technologies, industries and uses cases, that has spawned more confusion than insights. However, there are several key factors that investors and advisors should understand before they take the deep plunge into cryptocurrency, as cryptocurrency has now become a major factor for alternative investment.
Here are 5 key details about cryptocurrencies that will help your understanding of this extremely fast-paced space:
Global Regulations Are Different For Cryptocurrencies
|Various different markets are governing the cryptocurrencies and exchanges in different ways, which makes investor interactions different depending on where they are located. Certain jurisdictions do not allow Initial Coin Offerings (ICO) such as Korea or still have an evolving regulatory definition like the United States. Understanding these different regulations helps to have a deeper understanding on some of the global dynamics which are driving the value of various different currencies.|
Due Diligence Should be Conducted as With Other Investments
|There are investors that have jumped in with the expectation that all things should rise in the short run. Unfortunately, there are investors that have purchased at the peak of certain markets and are fearful during tumultuous days and regrettably generate very large losses. While there is still an element of liquidity which makes it unique from other private investments, investors should still conduct due diligence on the team and technology to appreciate and have a deeper understanding of future potential.|
Liquidity Is NOT Created Equal
|As with the various different regulations across jurisdictions, all liquidity is not created equal and often times there are multiple steps that may need to be undertaken in order to liquidate an asset into a different cryptocurrency or fiat currency. This is one of the risks that needs to be understood. Even further, the recent surge in interest, while has had a positive effect on pricing has caused various different exchanges to prevent new user sign-ups.|
Volatility Is to Be Expected
|The creation of a new potentially very disruptive industry drives interest from all aspects of life. However, the inclusion of various different players (more individuals than institutions at this stage) creates large amounts of volatility that needs to be understood and compensated for. Additionally, the fact that the entire industry is undergoing formation, implies that news is more important to pricing than any deep understanding of the market or its dynamics. Being able to discern the news from the noise is critical.|
Diversification is Still Required
|Many individuals are getting involved with cryptocurrency in the hopes of creating short term wealth. However, the positive market movements in cryptocurrency do not replace the consistent need for diversification and a balanced portfolio.|
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