With the rise of the internet era and the rapid advancement of technology, cryptocurrencies have quickly become a playground for individuals and serious investors alike. For newcomers to the field, it can be confusing and complicated to figure out what’s going on and what moves to make. Let’s take a look at some of the lessons you can learn from the cryptocurrency trend and examine what digital assets and digital currencies are.
Not all new ideas are equal
With digital currency on the rise, there are many different types of digital assets and digital currencies that have popped up.
- Digital assets like non-fungible tokens (NFTs) are files that contain unique codes for art, video, music, etc. These purchases give the owner usage rights for that one-of-a-kind file.
- Digital currencies function more like paper money—the number of units can fluctuate, and it is an unregulated online currency that is issued and controlled by the developers.
Some cryptocurrencies are digital assets, like Bitcoin. These are highly valuable due to the finite amount of units and the longevity and usefulness of cryptocurrency as a digital asset. Many investors put money into Bitcoin as a part of a well-rounded portfolio.
However, the internet is a strange (and wonderful) place, so there are also types of digital currencies that are not digital assets. For example, the digital currency known as “dogecoin” was started as a joke and features the meme of a Shiba Inu dog.
Yet another factor in cryptocurrency space is the distributed ledger platforms like Polkadot or Ethereum that have their own native digital currencies or assets. You can purchase these tokens and get a piece of the platform that records all the transactions of digital currencies and digital assets like NFTs. This is similar to how stocks function, and the ups and downs of the native digital currencies can be compared to how the prices of stocks fluctuate on a daily basis.
With all digital currencies and digital assets, the important part of investing wisely is knowing who developed it and why it exists so that you can figure out the value and ethics of putting your hard-earned money behind it. Because this industry is still highly speculative and volatile, it’s important to do your research and understand exactly what you are investing in. When trying to figure out the next big cryptocurrency, ask yourself ‘what are the risks of buying cryptocurrency?’ and consider carefully if this idea you’re interested in is worthwhile to back.
Looking to get rich quick? Think again.
Many people turn to cryptocurrency thinking that they will be able to buy low and sell high, dreaming of becoming overnight millionaires. While there are some very isolated instances where people have made huge profits, the reality is that life just isn’t that easy. It may help to think of this like the stock market - while there are investors who make risky trades and “make it big,” the majority of people take a more long term gain. For example, Bitcoin, as one of the oldest digital assets, has shown us that short-term gains don’t often last but overall the long-term gain of those who invested in Bitcoin early and held on through the ups and downs have been rewarded. In general, investments that have exponential growth over a short period of time tend to have the inverse as well, with sharp plunges and volatile behavior. Is cryptocurrency a good investment? Is cryptocurrency safe to invest? There is no magic answer to this, because like any investment, there is a huge variety of factors that play into it. The main point here is that you can’t get caught up in the sensational cryptocurrency news and expect to become rich quickly and painlessly. We see the “buy and hold” principle that you know from the stock market play out with cryptocurrency as well, and it’s important to have a long term view of this type of investment.
Timing is everything
As you can see from this Ethereum chart, the price of this digital currency (known as ether or ETH, and also referred to as Ethereum), had a huge growth and quick drop between May and June of 2021.
Bitcoin has seen similar trends, and overall most digital assets and currencies are difficult to predict the right timing of buying and selling. When wondering if cryptocurrency is a good or bad investment, the lesson of “timing is everything” holds the answer: If your timing is wrong, it could be a bad investment but if your timing is right, it could be a wise decision. Even with more traditional investments it can be difficult to get the timing exactly right, and this is especially true with digital assets and currencies.
Invest your money smartly with Delta Wealth Advisors
Following the volatile and rapidly changing crypto market is exciting and can also be overwhelming and confusing for individuals. At Delta Wealth Advisors, we have a team of experienced financial planning professionals who can assist you with adding digital assets and currencies to your portfolio to meet your goals of diversification. The digital landscape is always changing, and we can help align your financial life with your goals of engaging in this industry. Contact us today to discuss digital assets, digital currencies, and how you can take your first steps into the cryptocurrency market.