Following a 2022 marred by scandals, crashes, and losses, the crypto industry is on a steady course in 2023.
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The problems faced by the industry last year made many investors wary and lose confidence; However, investors are starting to look at the industry again, with some assets such as bitcoin and ethereum rebounding and a new crop of large companies filing for spot bitcoin ETFs.
Here are some things experts say investors should know before getting involved in the space.
First thing to know: What not to invest in
It is easily influenced and convinced by influencers and celebrities pumping various coins on social media. But not all crypto assets (and rates) are the same.
Those outside of crypto mostly hear about dog and frog scams and meme coins like DogCoin (Doge), Shiba Inu (Shib), and Pep Coin (PEPE). Those tokens are highly volatile and subject to pump-and-dump schemes and market manipulation,” said Thomas Hogan, an economist at the American Institute for Economic Research. “You can make a bundle, but you’re more likely to lose your shirt. Such speculation is more like gambling than investing.”
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As such, Hogan said serious investors should look at major tokens they can hold — or “HODL — for the long term. Bitcoin is the oldest and most trusted cryptocurrency.
“As the flagship, its gains are likely to reflect overall growth in the industry, and it is least threatened by future regulations as the Securities and Exchange Commission (SEC) has already deemed it not a security.”
He also noted that investors also have the option of investing their tokens in decentralized finance (DeFi) exchanges such as Aave and Uniswap, which are fully transparent and zero-leveraged, making them safer than traditional financial intermediaries.
Crypto is no different than traditional investing when it comes to potential losses
“A dirty little secret is that most people lose money when they invest in anything,” said Brian D. Evans, CEO and founder of Web3 Venture Studio and advisory firm BDE Ventures. “Crypto is no different. That’s the name of the game when it comes to investing in any asset class, but especially so when it comes to the digital asset space. This is a new technology and industry.
Still, Evans noted, there are things you can do to hedge your bets and make sure you don’t fall into the traditional trap of buying high and selling low, effectively losing money.
“Because we’re in a new industry, there are ways to get involved that the average person can’t get involved with in traditional markets,” Evans said. “In traditional markets, the moneymakers have insider access to early deal allocations or are already well-known and mega-rich VCs or angel investors. ‘The rich get richer’ – where it comes from.
According to him, crypto completely flips that model on its head, democratizing access to virtually anything, as anyone with a smartphone or computer can swap a decentralized token and buy what they want.
“Mostly in my opinion,” Evans added, “if you’re a graphic designer, a computer programmer, a blockchain developer, a marketing person, a video gamer, etc., you can bring your experience and expertise to these crypto, NFT, and blockchain projects and be called a ‘value-added investor.’
“This combination of cash and sweat equity can pay you big in the long run in a new industry where someone is willing to take a chance.”
FOMO is public enemy number 1
“FOMO — or fear of missing out — is your No. 1 enemy when investing in the digital asset space,” said Nick Ross Ntertsas, CEO and co-founder of NFT platform Ethernity. “A lot of times, you hear about people throwing an ungodly amount of money into a mooning crypto asset, and it suddenly hits its face and tanks. That is not a wise investment.
“First things first. When approaching this industry, assess for yourself what your personal risk profile is. There are certainly many digital assets that can perform well, but carry high risk. So invest only what you want to lose – nothing more.
Ntertsas added that the industry is being disrupted by new technology, and it depends on everything from Bitcoin’s halving and Ethereum’s move to developments in NFTs.
“But the industry introduces assets, then goes down and never recovers,” he said, “a phenomenon that relies on hype cycles that favor experimental technology that may work or may not work because it’s not widely adopted.
“So, in short, everybody calms down when the FOMO’s kicking in and says, ‘Hey, what’s the most strategic approach to take here given my risk profile and what I’m personally willing to lose?’ Starting from that perspective, you can prepare for a long-term investment into the most adopted and widely used parts of the space.
Stick to one category – one you understand
As Neil Somani, founder and CEO of Eclipse, explained, The digital asset space is incredibly vast and touches many industries, whether it’s finance in the form of DeFi, collectibles in the form of NFTs, or FOMO-like assets in the form of meme coins.
“So choose a category that speaks to your personal interests,” said Somani. “So, after researching yourself thoroughly on whatever asset class you want to invest in, you are already in a good position.
“Of course from there, invest only what you want to write off completely. For example, if you are interested in brands and digital communities, it might make sense to explore the NFT market.
“But it all depends on whether you find yourself compelling. Don’t waste your money on things you are not interested in and know nothing about. Basically, the key is to find what motivates you and (and do) it in a way that fits your personal-investing strategy.
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This article originally appeared on GOBankingRates.com: Crypto Investing: Something No One Tells You and You Really Should Know
The views and opinions expressed herein are those of the author and are not necessarily those of Nasdaq, Inc.