Major Questions to Ask Yourself Before You Trade the Cryptocurrency Markets

Masterworks
February 9, 2022

Cryptocurrencies are pretty hard to ignore at this stage of the game, even if you wanted to. There are news stories on the topic seemingly every day, which helps keep it in the minds of everyday people. Many have watched in awe at the soaring price of the cryptocurrency that started it all, Bitcoin, and wondered why they haven’t also invested in crypto. It can seem as if everyone who does is making a fortune, and it all looks so easy. However, that is not the case. Investing is always challenging, and even more so when investing in something as new as cryptocurrencies. Thus, we have come up with a list of questions to ask yourself before jumping into cryptocurrency investing.

Do I Know The Risk I Am Taking?

Investing in anything comes with risks. There would be no profit to be made if risks were not also involved. However, one should always carefully monitor their levels of risk to ensure they are not getting in over their heads when placing money in an investment. NDTV.com highlighted a few of the biggest risks that come with cryptocurrencies including:

  • Cryptocurrencies are unregulated – Touted as one of their major advantages over other types of currencies, the fact that cryptocurrencies are unregulated by any central bank or government. This means that their value is derived from what other investors are willing to pay for it at any given time. It can be risky to own an investment that has no backing behind it at all. Carefully consider this before investing.
  • Hacking attacks – If a criminal hacks into your bank account and steals your money, you at least know that you are backed up by the FDIC. It is frustrating to have to deal with something like this, but at least you know that your money will ultimately be returned to you. The same is not true of cryptocurrencies. If your crypto is hacked by criminals, you are simply out of luck. Security measures are in place to try to prevent this from happening, but they are not flawless.
  • Volatility – You need to be prepared to hold on for dear life at times in the cryptocurrency markets. They are known for moving very rapidly in all directions. If you are not positioned just right in your trades, then you could end up losing a lot of your money very quickly. You have to be able to withstand the big movements if you are going to play this game.

Take these risks and others into consideration before you begin to play around in the cryptocurrency markets.

Do I Have The Funds Necessary To Do This?

Trading requires you to have liquid capital available. You might toss $20 into the cryptocurrency markets for some fun, but you are unlikely to make a lot of money doing that. Instead, you need to understand that you must have a significant amount of funding in order to make serious moves in these markets. Even if you do so, you are not guaranteed anything. Make sure you have plenty of extra cash that you do not require for any other purpose if you are going to speculate in crypto markets, and only use money that you can afford to lose.

What Has The Growth Of Cryptocurrencies Looked Like In The Last Five Years?

People get very excited when they see what they perceive to be the massive growth of the cryptocurrency markets, but has that growth truly manifested in the last five years or so? It turns out, the answer is yes. As of the time of this writing (February 2022) the market capitalization of cryptocurrencies has grown from around $20 billion dollars in February of 2017 to approximately $2.2 trillion dollars now. That is approximately 100 times larger today than it was just five years ago!

The growth in the cryptocurrency market has been astounding, but it is unclear where it is going next. It has been fascinating to watch it climb as high as it is now, but even these numbers are off of its all-time high of approximately $3 trillion dollars in November of 2021. Therefore, there are reasons to keep an eye on how things will play out going forward. It is not yet clear, but we do know that it is going to be interesting to watch.

Classic Cryptocurrencies To Consider

Investors should pick and choose the cryptocurrencies that they would like to invest in very carefully. Perhaps they should stick to some of the most well-known ones such as:

  • Bitcoin
  • Bitcoin Cash
  • Ethereum
  • Litecoin

These currencies have been around longer and have a more active following. Should one decide that they would like to trade currencies that are a bit more stable, they would want to choose from this list. The smaller cryptocurrencies are even riskier as they are prone to violent swings of volatility.

How Do I Get Started?

If you wish to start trading cryptocurrencies all you need to do is open up a crypto wallet account to store your cryptocurrencies. Additionally, there are many brokers that will also store your currencies for you if you would like to do it that way. For example, you can purchase these currencies on investment apps like Robinhood, or even using your Paypal account. However you decide to do it, it should only take a few steps to verify your identity and start trading the currencies that you want. If you do this, then you will finally have your own place for storing your cryptocurrencies and hopefully making a handsome return for yourself along the way.


Masterworks
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