The popularity that cryptocurrencies have gained globally in recent times have come with a healthy dose of scepticism. Many people are more conversant with the volatility side of these virtual currencies but are not clear – if not wary of – what the long term investment opportunities are and how safe they are.
It is worth distinguishing between investing and speculating. A speculator buys an asset expecting to sell it at a higher price in the future. Their primary concern is the price, not the asset itself. An investor purchases an asset believing it has real, long-term value.
Investing in cryptocurrency could be a good investment and it can also be a bad one. But that is true for all investment instruments out there.
The first rule to investing in cryptocurrencies is to begin by getting a clear understanding of what they are and how they work. It is not something one goes in blindly. There are platforms that can aid this understanding. For instance in Nigeria there is the Luno platform which tries to simplify the process for first time investors.
To understand cryptocurrencies or virtual currencies think about them as digital money designed to work as a medium of exchange. Bitcoin and other cryptocurrencies record every transaction and distribute the records of the transactions equally to all parties involved. Every now and again a “block” of these transactions is verified an essentially sealed up and stacked on top of the last block, creating a chain. The transactions are users buying and selling different cryptocurrencies, in the form of virtual coins or token.
By nature, cryptocurrencies like bitcoin are decentralised and permissionless, meaning not a single country, company or person controls it and anyone can build applications. They are internationally accepted, directly or in exchange for local currencies. Being digital means they are quick to send around to anyone anywhere in the world.
One argument that often shows up on the wrong side of cryptocurrencies is their tendency to fluctuate without notice. The prices can go up and down and it is nearly impossible to predict those movements. This is partly due to their being young in the currency market, which is why new investors need to understand it before making their decisions.
According to experts at Luno, once the understanding is there and the decision is made to invest, start with a small amount.
“Never invest more than you can afford to lose and of course deal with reputable companies that offer an exchange and wallet – to store your digital currencies – like Luno. It is very easy,” they said in a note to BusinessDay.
Price surge can be very tempting, however Luno experts say making purchases when the market looks exciting can come back to bite. Hence, it is important to calculate how much money you have at the end of month after all expenses and savings. Then, take that and consistently invest it in digital currencies. You can start with any amount of money, no matter how small.
Besides volatility, investors are cast shades on cryptocurrencies because they are susceptible to scams and fraud practices. Most cyber criminals not only prefer to get paid in virtual coins but also target e-wallets. Hence, it is important that due diligence is carried out into the organisations providing the services. Companies like Luno will take extra measures to protect the funds of their users.
For instance, while it takes 30 seconds to download the Luno app for Android or iOS, there is an identity verification (ID) system, to make sure the investors funds are protected from money laundering, terror financing and so on. The process takes at most two days to complete. After the ID verification, the customer can make a naira deposit to Luno, using their credit card. This is usually done instantly. Once the naira shows in their Luno account, they can just tap ‘Buy Bitcoin/Ethereum using the instant buy option or on the Exchange (for experienced traders).
Investments into cryptocurrencies are already gaining traction. In 2017 Nigeria was the second country (China was number one) in the world with the largest number of peer-to-peer transactions in bitcoin.
BusinessDay have also found that there is an increasing influx of institutional investment entering the space. For some investors, digital currencies represent a hedge or alternative asset class worth considering in an investment portfolio.
“However, it is also important you have your security measures in place like securing your email and all social media logins with strong and unique passwords, enabling two factor authentication (2fa) which is one of the best and free ways to secure your online accounts,” Luno experts said. “
To understand more about cryptocurrency, read more about it in our previous post about cryptocurrency!