cryptocurrency investment coin research what you must know before you invest in crypto

Cryptocurrency Investment: What You Must Consider Before Investing in Crypto

Cryptocurrency Investment: What You Must Consider Before Investing in Crypto 1200 736 Oliver R. George

When it comes to cryptocurrency investments, one of the biggest challenges for investors without a professional trading background, is not getting caught up in the hype. Cryptocurrencies have quickly risen in market cap and public attention, even as analysts have cautioned investors about their volatile nature and unpredictability.

Cryptocurrencies investments are a new asset class with extreme volatility, high chances combined with high risk. We prepare you for your first cryptocurrency investment.


cryptocurrency investment coin research what you must know before you invest in crypto


First Step: Get a Feeling for the Crypto Industry

This is particularly important for those investors who are new cryptocurrencies, it’s essential that one develop a sense for how the crypto industry works before investing.

Take time to learn about the different cryptocurrencies available. With over 3,000 different coins and tokens available, it’s crucial to look beyond the biggest names like Bitcoin, Ether, Ripple, EOS, and Litecoin. Different coins have different dynamics.

Also, explore the blockchain technology basics, to get a sense for how this aspect of the cryptocurrency world works and why it is important.

Like every start, it might be challenging at the beginning, if you don’t have a computer science or coding background. Don’t give up if some aspects of blockchain technology will be a challenge to understand and might sound too technical for you.

Once you got some basics and you’ve identified potential cryptocurrencies for investment, look into how those coins make use of blockchain and what they provide that is different from the rest of the field.


crypto coin research what you must know before you invest in cryptocurrencies


Main questions are:

  • Why are these coins really useful?
  • What are the token economics that will ensure the growth in value?

By better understanding cryptocurrencies as an investment class and blockchain in general, you’ll be better equipped to determine whether a potential investment opportunity is worthwhile.


Second Step: Check Social Media Channels and Word of Mouth

Because cryptocurrencies are new and in an exploration phase, things tend to develop very quickly. Crypto is trendy for millennials and there are robust and very active communities of cryptocurrencies investors and enthusiasts in communication with one another around the clock.

Get plugged into this community to learn about the buzz going on in the cryptocurrency world. Twitter, Reddit, Telegram Groups, Slack have become a central hub for digital currency enthusiasts, but there are also many other communities online with active discussions going at all times, 24/7.


Third Step: Check the Whitepaper

While word of mouth and the community support is important, the specifics of a cryptocurrency project and details regarding the technical side, business model, coin / token usability, governance of the project, etc.are more important.

When you’re considering an investment, take the time to read the project’s white paper. Every crypto project should have one, and it should be easily accessible.

General advice: No white paper, no investment in cryptocurrencies.


cryptocurrency research what you must know before you invest white paper


Study the white paper very carefully; it should tell you everything about what the developers of the project intend in their work, including a roadmap and timeline, a general overview of the token mechanics, etc.

If something in the white paper is missing or feels incomplete, if the white paper consist of marketing descriptions only, consider it a serious red flag.

Checklist for Cryptocurrency Investments 

Following data points are important when you buy cryptocurrencies:

  • Market capitalization
  • Exchange volume
  • Trusted exchanges that listed the coin
  • The total available supply of coins
  • Total future supply of coins
  • Transaction volumes on a chain (Does someone use the blockchain?)
  • Hash power, decentralization of mining for PoW (Proof of Work)
  • Distribution of coins (Do a few people, e.g. the management/team, own biggest part of available supply?)
  • Events coming up, roadmap
  • Community activity (Twitter, Facebook, Reddit)
  • Google trends for keywords


do your diligence make research coin cryptocurrencies

Before you invest in cryptocurrencies: Always DoYourResearch and DoYourDiligence

Due diligence is always advised for investors. In the world of cryptocurrencies, it is an absolute must! The level of research required, given the industry and the fast changes in the early stages, is exponentially higher and more difficult.

Investments in cryptocurrencies are not comparable to investments in stock, not even in penny stocks! Investments recommendations in stocks are based on the fundamentals of a business and financial figures, P&L, balance sheet, KPI metrics. For cryptocurrency, this is not possible and does not make sense in most cases.

Therefore a mindset change is required in research and due diligence for crypto, not only from the requirements of a considerably more volatile and illiquid market but given its extraordinary speed of evolution in the early stage.

Given the unpredictability of risk and the potential for high returns, the most prudent approach for new investors in crypto might be to hold just a very small proportion of their portfolio in cryptocurrencies. This would give some exposure without excessive risk as the market continues to mature.

There is ultimately little downside from investing 1%-3% of the portfolio in cryptocurrencies, but the potential upside is almost unlimited.

Again: Invest only what you can afford to lose in crypto and DoYourDiligence! OR check the Investment Reports from Cryptocurrency Investment on this website. 


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Risk cryptocurrency investment crypto risk investment

Your Risks for Investments in Cryptocurrencies

Your Risks for Investments in Cryptocurrencies 1241 855 Oliver R. George

Let’s face it: Jeannie is out of the bottle and there is no doubt cryptocurrencies, coins, digital tokens, and blockchain-based business models are here to stay. And there is a lot of hype around Cryptocurrencies. Because most investors do not know what they’re investing in and expect this to be a “get rich quick” scheme. However, there are quite some Risk for Investment in Cryptocurrency.

Therefore it will become key for every investor to understand how risk interplays with this new industry and the underlying blockchain technology.


Risk for Investment in Cryptocurrency no. 1: Market Volatility

The sharp increase and later the decline in the value of cryptocurrencies in 2017 and 2018 should be examples everyone understand and are well documented.

Example Bitcoin, which peaked at $20,089 on December 16, 2017, is trading at $3,866 on January 5, 2019. It’s a similar story for Ether, Monero, Litecoin and across all other altcoins.


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Bitcoin development Sep 2017 – Jan 2019, highly volatile investment


But this is only half of the story.

Volatility in the crypto markets has always existed. We’ve seen plenty of other similar crashes before: In 2011, the first Mt. Gox hack resulted in a 95 percent loss. In 2014, the second Mt. Gox hack led to a 63 percent loss. Ultimately, buying cryptocurrencies could result in losing everything you invested in them.

You should never invest more than you can afford to lose.


Risk for Investment Cryptocurrency no. 2: Regulatory Issues

This is a very young industry with a “Wild West” mentality.

Regulatory and legal issues are two of the big obstacles facing the crypto sector in 2018 and 2019. Because the asset class is so new, governments and financial institutions have not yet formed a legal framework for them. Therefore, there’s a significant risk that the legal status (securities or not?), trading rules, or even outright legality, could change overnight.


Risk for investment in cryptocurrency Crypto regulation SEC cryptocurrency regulation tokens and coins
Missing regulation for Cryptocurrencies is a risk for investors.


To be clear: these uncertainties mean that the money you’ve invested in coins, tokens or cryptocurrency companies carries more risk than your capital in established asset classes.


Risk for Investment in Cryptocurrency no. 3: Coins Might Have a Short Life. Many Coins Will Disappear or Lose Entire Value

The actual number of altcoins represents a significant risk to an investor. We estimate that there are between 2,500 and 3,000 coins in existence.

Coinmarketcap lists 2,086 coins in January 2019, with names like “Halloween Coin”, “Runners Coin” and “Gossip Coin”. And it’s incredibly difficult to know which of those coins have realistic, mainstream, long-term potential. Some cryptocurrency coins are very obvious that they have no chance.

However, there are still very few real-world examples of blockchain and cryptocurrency adoption. Right now, the price of most coins is predominantly being driven by speculation.

Therefore we face the risk, that some Cryptocurrency coins will drop in value significantly or become zero.


Risk for Investment in Cryptocurrency no. 4: Security Offer / Consumer Protection and Exchanges Risks

Most of the cryptocurrency coins or tokens will be regulated either by the U.S. Securities and Exchange Commission, SEC, as a Security Investment or as a usability token under the for Consumer Protection.

Since the exchanges, that trade these crypto coins and tokens might be located somewhere in the world and not regulated, you face the risk to lose your investment.

If your exchange becomes insolvent, you will lose everything.

Similarly, exchanges get hacked on a worryingly frequent basis, often resulting in a considerable loss of money. The big difference for other assets: If something similar happened at your bank, brokerage, or credit card, you’d get your money back swiftly.

risks for investments in cryptocurrency - you lose your crypto lost key crypto coin
Risks for investments in cryptocurrencies: Always control the keys of your wallet.


Therefore always control the keys for your wallet. Not your keys, not your money! If you keep your investment in an exchange, you will usually not control the keys. Use a secure “cold wallet”, to keep your crypto coins and tokens safe.


Risk for Investment in Cryptocurrency no. 5: Market Manipulation

The markets for cryptocurrencies are very young and as mentioned, mostly unregulated. Therefore a high degree of insider trading, “Pump and Dump”, Bot trading, etc. must be assumed.

You will find many examples with assumed manipulation. So-called “Whales” can significantly influence the prices of crypto coins and tokens in both directions. On a day-by-day basis, crypto coins can increase up by dozens of percentage points within a short period of time, to dramatically fall back to their previous levels a few hours later.


risks for investment in cryptocurrency crypto whales manipulate the market cryptocurrencies
Risks for your investment in cryptocurrency: Whales have the Power to Manipulate the Market


Be wary of sell walls from whales (buying coins cheaply ahead of positive news) and hidden activities, e.g. dark pools (anonymous trading) are common market manipulation tactics. These technics create a considerable amount of risk, especially for “noob” investors who are not familiar with the underlying market mechanics.


Risk for Investment in Cryptocurrency no. 6: Enter and Exiting the Crypto Markets is a Risk

Deposits in fiat to unknown exchanges with a low reputation might include some very high risks. Unregulated, smaller websites and exchanges will not provide you with a customer service level you are used to and there are many examples, where the funds disappeared. However, this is often based on user mistakes, e.g. transfer of Coins to a wrong address or similar, technical errors, etc.

Exiting the markets into fiat might be a similarly high risk, if not done via a trusted and reputable exchange. Some exchanges require a very detailed KYC (Know Your Customer) process, in order to allow you to withdraw fiat money. This verification process can take weeks.

Expect the unexpected: Some exchanges have been accused of withholding funds for vague and nondescript reasons.


Risk for Investment in Cryptocurrency no. 7: Cryptocurrency Scams

A very high risk for newbies are crypto scams. They are widespread in the industry and can be very sophisticated. Some statistics show millions of USD lost to scams in the in 2018.

The four most commonplace scams are fake ICOs, Ponzi schemes, advertising on websites and Twitter bots.

Many new investors trust the details they see on a webpage and don’t perform sufficient due diligence and research. Scammers have an easy game. They create intensive hype around a fake ICO on all channels (Telegram, Twitter, Websites), but once you transfer your Ether or Bitcoin, you will never hear from them again.


risks for investment in cryptocurrency Crypto Scam Bitconnect Cryptocurrency Scams

Scams are a risk for investors in cryptocurrencies.


You also need to keep an eye for Ponzi schemes branded as altcoins. Some of the most famous include Bitconnect, OneCoin, and Plexcoin have been intensively covered by the media. Want to learn more about scams? Check these Bitcoin scams from last year.


Before you Invest in Cryptocurrency: Know What You’re Investing in

Cryptocurrencies, Crypto Coins or Tokens are not Currencies comparable to the Euro, Pound or Swiss Franc. They are digital assets that are intangible, very often illiquid (small altcoins), often unregulated and always uninsured!

There is no deposit insurance “floor” for this asset class, which will safeguard your investment. Crypto exchanges are often unregulated and located in legislation that prevents them from legal prosecution. In most cases, the Crypto exchanges provide zero investor security.

You need to control your investment. this is not carefree for the time being. The wealthiest crypto investors are going to great lengths to protect their intangible crypto coins by using cold storage devices (e.g. Nano Ledger) placed in physical (offline) vaults.

Given that Crypto Coins are an intangible asset class, human error and something as simple as you forgot or lost your password, can cause total loss of your crypto investment. The risk of being locked out, losing hardware or facing “real-life risks,” such as spilled coffee is often enough to create losses.

Precisely because there are risks in the cryptocurrency market there are rewards. Understanding the potential financial gains of surfing these waves should however not make you blind for the risks involved.


Check our Guide for Beginners with Tips and Actionlists for your Crypto Investment. Learn more about Risk for Investments in Cryptocurrencies.

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