Investing in cryptocurrency: 4 mistakes not to make

 Individuals, out of deep conviction in the success of virtual currencies or to try their hand at this new kind of investment, can diversify their assets by investing in cryptocurrencies.

Once an ultra-niche market reserved for the geekiest of geeks, access to crypto-currencies has been widely democratized thanks to the emergence of online brokers and web platforms allowing you to buy Bitcoin and other cryptocurrencies, to build up your crypto-currency portfolio. Be careful though, it's not because investing in tokens is now relatively easy that it's less risky.

Discover in this article 4 mistakes too often made by the neophyte and the right attitude to adopt when you want to start trading virtual currencies.

Neglecting the technology on which the cryptocurrency is based

First of all, you should never invest in cryptocurrencies if you don't understand what they are about. In fact, it's best not to invest in cryptocurrencies if you don't understand what it's for, and more importantly, how it works.

The purpose of virtual currencies, like any other currency, is to be used to buy products and services. And the craze around these new means of payment is real. However, speculation, very present in the crypto-currency market, is also for many investors, a reason for investment. At their own risk!

What is certain is that virtual currencies are still seeking their balance, between means of payment and financial assets.

We have seen the possible uses of cryptocurrency, now let's see how these tokens work. Most virtual currencies are based on blockchain technology.

The initial objective is to create a currency not controlled by central banks. The tokens are put into circulation by the computer protocol that defines both the number of tokens in circulation, their speed of circulation, and their storage power. This protocol can be modified by any developer, as long as he has the agreement of the whole community.

They enable dematerialized financial transactions to be carried out quickly, simply, and therefore cheaply; but also in a secure and anonymous manner, without the need for a trusted third party. As such, they may represent the future of payment methods.

Investing in a single virtual currency

Diversification is a golden rule of investing and crypto-currencies are no exception. You don't put all your eggs in one basket. So, if you are convinced of the advent of cryptocurrencies, it is better not to just invest in one but spread the risk, by buying different tokens.

It may be wise to vary the characteristics of the assets held in the portfolio and opt, for example, for currencies whose supply is constrained, i.e. the quantity is limited and defined from the outset, such as Bitcoin (21 million units in 2140), with currencies following an inflationary model, such as Ethereum, for which no limit has been set to its money supply.

Beware, it is better to choose relatively known and recognized currencies to avoid serious disappointments. Thus, it will be advisable to favor crypto-currencies with a relatively high market capitalization.

Betting a lot of money on crypto-currencies

Hyper volatile, hyper-risky, investing in crypto-currencies is not recommended for the most risk-averse cautious profiles, and others would also do well to devote only a very small part of their wealth to it.

Virtual currencies fall into the category of atypical investments or alternative investments, sometimes also called exotic investments.

These atypical investments include art, books, wine, forests, collectibles, virtual currencies, etc. These are diversification investments, relatively risky, and as such should never represent more than 5% of your wealth.

Investing in cryptocurrencies with your eyes closed and in full confidence

As we have seen, virtual currencies are risky assets. But you should also know that many scams exist in this field. Thus, you can find on the web fake cryptocurrency trading platforms or virtual currency wallets which offer to buy or trade various cryptocurrencies but which, in reality, take your money and never give it back.

It may be tempting in this context to seek the advice of a specialist in atypical investments. You could consider asking your wealth management advisor (WMA) for advice, but beware, in the eyes of the AMF, crypto asset investments are not miscellaneous assets and, as such, a wealth management advisor will not advise you on the matter. You will have to figure it out on your own.

Be aware that there are two types of professionals who can offer you their services to buy and sell virtual currencies: digital asset servicers and stock brokers offering derivatives based on crypto-currencies.

Digital asset service providers (DASPs) are financial intermediaries that offer various services related to crypto asset investment and in particular the buying/selling and holding of crypto assets.

Once the PSAN offers crypto-asset custody or access to crypto-assets, as well as the purchase/sale of crypto-assets against legal tender currencies, it must be registered with the Autorité des marchés financiers (AMF). Before entrusting your money to this type of intermediary, check that this is the case and that it is not on the AMF's blacklists of platforms not authorized to offer crypto assets.

You can also invest in cryptocurrencies by taking a position in derivatives whose underlying is a virtual currency. Therefore, you will be able to buy crypto assets via an online broker that offers this type of derivatives. Be careful, before investing, check that the provider is licensed and listed by Regafi (the register of financial agents).

All our information is, by nature, generic. It does not take into account your personal situation and does not constitute in any way personalized recommendations for the realization of transactions and cannot be assimilated to a financial investment advice service, nor to any incitement to buy or sell financial instruments. The reader is solely responsible for the use of the information provided, without any recourse against the publishing company of being possible. The publishing company of cannot be held responsible for any error, omission, or inappropriate investment.

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