- Treatment centres worldwide are now considering cryptocurrency trading as a fast-growing addiction, with some asking for as high as US$90,000 to treat the “ailment”.
- Investing in most assets in the world is risky. Investing in money markets is complex, and investing in real estate is risky
- CNN reports that losses from cryptocurrency scams totalled over US$429 million as of February 2023
After the year-plus crypto winter, the cryptocurrency market is recovering. Bitcoin now stands at US$30,010, bouncing back from its lowest price below US$16,000 in November 2022. The prospects in the market look green, with a 65 greed to fear index.
The pumping crypto market might encourage beginner traders to buy their first bitcoin. However, there are some crucial things that a trader need to know before venturing into the highly volatile market.
1. Investing in cryptocurrency is a risky business.
The cryptocurrency market is quite volatile. There is no guarantee that the price of a cryptocurrency will sustain, pump or dump in a particular time. Case Example, Bitcoin came from US$69,000 in November 2021 to US$16,000 in the same time last year. The current price at the time of writing stood slightly above US$30,000.
In retrospect, investing in most assets in the world is risky. Investing in money markets is complex, and investing in real estate is risky. It is the same for government bonds, stocks, equity mutual funds, and many other levels of investment. However, cryptocurrency is different as it is highly speculative, and sentiments from a specific group of individuals can send the price either sharply pumping or plummeting.
Risks when trading cryptocurrencies
The risks in trading cryptocurrencies run from the counterparty, security and even regulatory risks.
- Counterparty risks. The probability that a party in an investment may fail to fulfil its part of the deal and possibly default on contractual obligations.
- Security risks. The crypto market is marred with scammers looking for potential investors to steal from.
- Regulatory risks. Depending on the country you are investing in, cryptocurrency trading faces a lot of hit back from governments. In most countries In Africa and globally, trading in crypto is deemed illegal.
2. Invest only what you can afford to lose.
The cryptocurrency market has seen unprecedented growth in value over the last decade. However, that does not negate the possible 90 per cent price fall or even projects falling to zero. For example, the Luna crash, which many could not have imagined would have happened, fell in price to almost nothing, sinking with it many investors.
As a trader, remember that whatever you invest in has no guarantee to generate potential returns. Practice reasonable risk management risks and read intensively on several cryptocurrency books to get a better insight.
3. Crypto trading is highly addictive.
As you venture into crypto trading, it is essential to note that you can quickly get addicted, similar to betting. According to Dylan Kerr, an online therapist, crypto trading demands your attention. If a trader takes their eyes off the computer screen, even for as little as a few minutes, chances are very high that one could miss out on massive opportunities and incur losses in the case of a day trading bull run.
The buzz and anxiety associated with watching the behaviour of the candlesticks release dopamine similar to drug abuse, which makes a trader go on and on in trading bitcoin and other cryptos.
There are over 12,000 cryptocurrencies, with the market adding around 1,000 new cryptocurrencies every month, giving a lot of altcoins to keep a trader busy. Treatment centres worldwide are now considering cryptocurrency trading as a fast-growing addiction, with some asking for as high as US$90,000 to treat the “ailment”.
A report by Bloomberg revealed that many people are considering crypto trading addictive and are seeking medical help for it. Crypto addicts have gone as far as comparing their addiction to drugs and gambling.
4. Beware of scammers
Just like any other successful business venture that involves regular counterparty interactions, there are always people seeking to gain without putting any work into it. The same goes for the cryptocurrency market. They include Ponzi schemes, pump and dump schemes, and hackers trying to steal your keys, among many others.
CNN reports that losses from cryptocurrency scams totalled over US$429 million as of February 2023. As an aspiring trader, research a project before investing in it. Additionally, if a deal sounds too good to be true, it probably is.
5. Always do your research before taking any action.
Most crypto projects must have a whitepaper. This document shows what purpose the crypto project intends to serve. Be careful to read through the paper. Evaluate whether the reason for creating the crypto project is sustainable. Moreover, look at the creators’ names behind the project, and search for them to establish their legacy.
However, if you are starting, you must wrap your head around the largest cryptocurrencies first, such as Bitcoin and Ethereum, before venturing into any other cryptocurrency project.
Note cryptocurrency is not a get-in-get-rich-quick initiative, but it takes time to bear fruits. In the case of Bitcoin, it has been there for over 13 years to accomplish the price it has now managed to hit.