The wealth of information available regarding cryptocurrency and investing in it has become sort of a double-edged sword. How? While the right information will accelerate your journey in blockchain and cryptocurrency investing, the wrong information will ruin your fortunes devastatingly. Now that blockchain tech has gone mainstream, scam projects are popping up all over. Investors have to decide which projects are worth staking their money and which projects might lead to a deep financial loss. Getting the right information is indeed a daunting task, as it is getting harder to distinguish between a genuine cryptocurrency project and a scam.
It is reported that roughly half of the products floated for Initial Coin Offerings (ICOs) in 2017 evaporated into thin air, leading to great losses for investors. The government of South Korea suspended ICOs as a way of protecting the public from losing to fraudsters. At the same time, China effected a ban on developing, trading, and supplying information on cryptocurrencies as a way of protecting the public. The ban is still in effect. What exactly do you need to know before investing in any cryptocurrency?
Does the project have the right technology and is the business model adopted viable?
The average investor may not understand the nitty-gritty of the technology used for the cryptocurrency. The company you are investing in should, however, provide a document with all the technical and nontechnical information regarding the product (known as a ‘white paper’). Once an investor has an idea of the basic tech that runs the product, they are ultimately in a better position to make a decision. The viability of the blockchain product can also be weighed against the solution the product aims to introduce. For example, Patientory is a blockchain product meant for use in the health sector. Given the need for permanent, accessible, and safe medical records, governments and private hospitals are likely to adopt the use of this product, hence strengthening the product’s viability.
Is the product properly regulated and is it legal?
Blockchain technology has preceded policy and framework formation. Governments all over the world are trying to formulate regulations and policies to keep up with the ever-evolving technology. Before investing in any project, you should check if their operations are legal. Check on the company’s registration status first. Where is the company registered? Do they have an office? Who are the team leaders behind the product? Who else is talking about the product? Are there influential figures who have endorsed it?
Get as much information as possible regarding the company, its leaders, and how they have previously performed. It will take time and effort but gives you assurance over your investment.
Who is the competition?
In the last two years, blockchain products have flooded the market. Each project comes loaded with promises of “disrupting the market.” Each product also puts up a spirited campaign with the aim of attracting investors. Before investing in any of them, take your time and do proper research. Find out who else is operating within the niche that the product has come to disrupt. Compare and contrast the projects viability and potential to grow so that you make an informed decision.
Some industries, such as the health industry, have an influx of products promising to solve this or that problem. Take time to study their differences, similarities and realistic roadmaps.
How much are you willing to invest?
This is one of the basic investment decision questions regardless of the investment opportunity. It applies to blockchain tech products as well. One thing you can do is spread the risk by investing in different blockchain products. Use all the information you gained from answering the previous questions to decide how much you should invest. Be sure to follow your investment closely to know just when to cash in or pull out.
Finally, Keep this in mind…
Cryptocurrency is still in its teething stages and there are bound to be a lot of changes that will affect the profitability of the industry. For example, taxation laws could change in your country or region. You need to keep up with all the latest news, reviews, trends and market analysis from every reliable source. Use all the information available to you to make the best investment decisions to suit your financial goals.
Originally published at www.datadriveninvestor.com on June 20, 2018.
What You Need to Know About Cryptocurrencies Before Investing was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.