5 Factors to Understand Before Buying Cryptocurrency

Updated on September 29, 2021 | by Alex Smith

What to Consider Before Buying Cryptocurrency

Cryptocurrency continues to be an exciting market with no signs of slowing down. With the prices of major cryptocurrencies like Bitcoin and Ethereum reaching all-time highs, there’s more attention on cryptocurrency than ever before. It is why everyone wants to know how to get in on the action.

And the answer is simple. You can buy cryptocurrency directly. However, before you do so, it’s good to familiarise yourself with all the critical aspects of this digital currency.

The cryptocurrency market is too volatile for many companies to invest in, but it is still a lucrative way to make money.

If you are interested in the industry, keep reading to discover the factors you need to look out for before buying cryptocurrency.

Why Invest in Cryptocurrency?

There are many reasons to invest in cryptocurrency. 

  • Cryptocurrencies are independent of banks and other centralized financial institutions. Meaning your service provider can process transactions 24/7/365 without holidays, weekends, or closures.
  • Cryptocurrencies offer people the ability to earn passive income. Meaning even if you don’t work, it still profits you.
  • They are the future of money transactions.

Some Key Factors to Consider

Determine Your Goals

Be clear about what you want out of your investment, and don’t rush into anything. For some people, investing in cryptocurrency is about making a quick buck. Others might be looking for long-term investments that won’t burn a hole in their pockets.

Whatever your reasoning may be, make sure you know exactly where you stand before investing any more time or energy into cryptocurrency.

Know the Market Cap

The market cap of a cryptocurrency can be determined by multiplying its total supply by its market price. For example, Bitcoin’s market cap is around $883 billion as of 15th August 2021. If you want to buy cryptocurrency, this is one of the crucial factors to keep in mind.

It gives you an idea of how widely it’s being traded and can help you figure out whether it’s being over or under-valued at current prices. If many people are selling something with a relatively small market cap, it will be somewhat volatile. 

And suppose there are fewer people trading something with a large market cap. In that case, it will be relatively stable even when more significant players move into or out of positions in that particular asset class.

Picking the Right Cryptocurrency Exchange

You can purchase cryptocurrencies from various exchanges. But it’s essential to pick one that matches your level of experience and technical expertise. You should probably avoid complex platforms in favor of ones that offer a simple user interface, especially if you’re just a beginner. 

Below are a few more things to consider before you pick an exchange to purchase cryptocurrency.

  • Find a trustworthy exchange with a strong reputation.
  • Consider the location of your exchange.
  • Check the legitimacy of the exchange.
  • Choose a cryptocurrency exchange with good customer support.
  • Don’t get tempted by ads and discounts.

Research the Market

The more you know about this field, the more likely you will make an informed decision. So, start with popular news sites like Forbes and CoinDesk if there’s any confusion or concerns about what exactly cryptocurrency is.

Risks You Can Afford

With any financial decision, you should carefully assess your appetite for risk. If you’re an experienced trader with a proven record of success, it may be more financially prudent for you to take bigger risks by investing large sums of money. 

However, if you’re a newbie, ask yourself how much you can afford to lose, and make sure that you invest only that amount in cryptocurrencies. 

Any investments are risky, especially when it comes to cryptocurrency. But if you approach them intelligently, they can be very profitable. Research properly every time you buy cryptocurrency.

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