Cryptocurrency has made an enormous impact on the investing world over the past few months, and many investors have scrambled to jump on the bandwagon in hopes of getting rich.
While prices have taken a tumble recently, some investors are choosing to “buy the dip” while these investments are more affordable. That can be a smart move in some cases, but if you choose to invest, it's important to make sure you're buying for the right reasons.
Cryptocurrency can be confusing, and there are several myths that could be costly. If you've already invested or are considering investing, be sure you're not falling victim to any of these myths.
Myth No. 1: You can easily become a millionaire overnight
There are stories of people who purchased obscure cryptocurrencies and made loads of money in a short period of time, and it's easy to get excited about the prospect of getting rich with this type of investment.
However, those instances are rare, and it's important to be realistic about your expectations. If you decide to invest, it's wise to take a long-term approach rather than attempting to get rich overnight.
Before you buy any cryptocurrency, think about whether you're willing to hold your investments for years or decades. If crypto does succeed, you could stand to make a lot of money over time. However, investing is not a “get-rich-quick” scheme, and short-term investing strategies could result in losing more than you gain.
Myth No. 2: Investing in crypto is no different than investing in stocks
While cryptocurrency and stocks do have some similarities, they're vastly different types of investments.
Stocks have a long track record of increasing in value over time, while cryptocurrency is still a relatively new phenomenon. Bitcoin (CRYPTO: BTC) is only a little over a decade old, and many others have been created within the last few years.
When you invest in a stock, it's possible to dig into the company's financials, study its leadership team, and examine its competitive advantages to determine whether it's a solid investment.
With cryptocurrencies, though, there's not as much information to base your decision on. Nobody even knows if they will still exist in 10 or 20 years, let alone which ones are most likely to succeed. This can make it tougher to research your investments before you buy.
Myth No. 3: Cryptocurrency is guaranteed to be the next big thing
Cryptocurrency supporters believe the technology will change the world as we know it. And it just might. Or it may never catch on, becoming worthless someday.
While experts may make predictions about what the future has in store for cryptocurrency, the truth is that nobody knows for certain what will happen. If you're investing now under the assumption that it's guaranteed to be huge someday, you could be putting your money at risk.
Should you invest in cryptocurrency?
All of this isn't to say that cryptocurrency is necessarily a bad investment. There is a chance prices could go to the moon someday, and investing now could make you very wealthy.
However, it is a high-risk investment. If you're willing to take on high levels of risk for the potential of earning lucrative returns, cryptocurrency may be the right investment for you. But if you're a risk-averse investor or can't afford to take on such a volatile investment right now, there are plenty of better options out there.
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