Cryptocurrency dangers – beginner’s guide
Many people see the amazing returns cryptocurrencies can bring and decide to invest their life savings or take out a loan. DO NOT do this. The volatility of the cryptocurrency market can slaughter you your investments, meaning that your life savings or loan would be gone. You can lose all your money by investing more than you are willing to spend on things you don’t understand properly. No one should fall into the trap, thinking this is a “get rich quick scheme,” as it is exactly the opposite of that.
It took years for early Bitcoin investors to gain big returns, increasing from a few pennies to where it is now. With how young this technology is, people should invest only when they see the true potential of crypto in the long-term.
Cryptocurrency hype factor
Cryptocurrencies bring a lot of hype with them. The simple explanation of why would be because most people do not know what they’re investing in and would rather listen to the crowd.
As the crowd is a quick decider on the cryptocurrency trend, prices either skyrocket or plummet. Taking out loans or investing life savings in such investments would be unreasonable. Even though the hype factor has diminished as the technology is maturing, there are still more than just traces of it on the market.
One should be informed and armed with knowledge before jumping on the hype-train. This would significantly reduce the investment risk. Most importantly, this way of thinking would position your investments to be aimed towards the long-term fundamentals of the technology. There are plenty of opportunities to make enormous profits in the cryptocurrency market. All the investors should have is patience as well as wisdom to acquire the right knowledge before investing. The worst thing that can happen is to be the person that invests based on the current hype without researching the project first. If the project seems too complex, then you should seek answers. The cryptocurrency community is filled with individuals that will be more than willing to simplify things and help you understand each and every concept that is important to certain projects.
Ponzi schemes and HYIP’s
One of the most important skills that you absolutely must possess is the ability to identify cryptocurrencies with solid fundamentals. There are thousands of cryptocurrencies available, which make people overlook the fundamentals, and make investment decisions based on the hype for some reason. There is, however, one thing that can be worse than investing in a project that is more hyped up than it should be, and that is scam projects. There are numerous of Ponzi schemes as well as HYIP’s (high yield investment program) on the current market, though the number of such projects greatly reduced in the past year.
To clarify, a high-yield investment program (or HYIP for short) is a type of Ponzi scheme where investors get promised an unsustainably high return on investment by paying previous investors with the money invested by new investors. Investing in such programs is extremely good until it is not. At some point, these projects simply vanish, keeping all your money as theirs. No matter how appealing the returns sound, no one should invest in such projects.
The most famous Ponzi scheme cryptocurrency market has seen was Bitconnect. This organization promised investors fixed daily returns in return for investing in their project by buying their cryptocurrency. After working for a couple of months and paying people from their new customers, Bitconnect started to generate extreme amounts of hype. People promoted it willingly and were able to make insane returns – on paper. Almost no one managed to pull their funds out of the company before it got shut down in January 2018.
Conclusion
Cryptocurrency investors should watch out as there are many dangers in this unregulated field. There is a potential to make great returns, but to also lose a lot of money. One should be careful and wise when it comes to investing in cryptocurrencies, both regarding the size of the investment and the projects they invest in. Don’t be led by hype and other people’s opinions, but rather form your own.