No Sleep Lost: How to Achieve Peace of Mind when investing in Crypto
Despite being looked down upon as pastime for geeks and nerds, cryptocurrencies have generated enormous interest in the world of finance. There’s almost no major bank, accounting firm or government that has not studied cryptocurrencies or the potential of blockchain — the technology behind crypto.
But among those individuals who have decided to invest, anxiety is surprisingly common — so are sleepless nights when bedtime time is interrupted by a notification indicating a change in price.
One study looked at hospitalization rates in California and found that the daily fluctuations in stock prices have “an almost immediate impact on the physical health of investors, with sharp price declines increasing hospitalization rates over the next two days”.
Although the health of crypto investors hasn’t yet been studied, it’s no surprise that the price jumps in cryptocurrency can make the hearts race.
To make matters worse, not all concerns are about the price. In the world of crypto, things sometimes turn ugly — hacking, Ponzi schemes and the amorality of blockchain companies can completely ruin the fun for other honest investors.
All of this begs the question — how do you keep your head above water in this perilous storm?
1. Understand the market risks
You’ve heard this before: to fight fear, eliminate the unknowns. Study the market to find out whether it is compatible with your personal tolerance of risk.
More and more investors are piling their money into Blockchain companies, through Initial Coin Offerings (ICOs), a form of online crowdfunding. But that doesn’t mean you have to do the same. Having something to brag about to your colleagues at the watercooler is not a valid reason to invest.
We understand that potential returns can be too great to ignore. A Boston College study found that an average investor could expect returns of 179% if tokens were bought at ICO prices and sold on the first day’s opening market price.
However, the study also discovered the catch: less than half of the projects remain active 120 days after the initial sale.
It takes a lot of nerve to jump out of the train when it is still promising a trip over the rainbow. Reading through the ICO whitepaper, reviews, and analyst advice can help soothe the nerves before you decide if investing is something you’d like to try.
2. Avoid suspicious proposals and fishy websites
There’s a reason your parents warned you not to talk to strangers — if you’re too quick to trust them, they might take advantage of you.
Cryptocurrencies and ICOs have fallen into the hands of criminals before. Bloomberg reports that some 14% of Ethereum and Bitcoin stash has already been compromised by hackers. Major social media platforms such as Facebook and Google have banned advertising for ICOs, citing concerns of fraud as the main reason.
Some statements found online can resemble a casino advertisement: “200% GUARANTEED annual returns for our early contributors” or “invite your FRIENDS to DOUBLE your tokens”.
Some promises are more intricate: the U.S. Securities and Exchange Commission, the SEC, has created a coin of its own — HoweyCoin — to warn crypto buyers about potential scams. Although the site convincingly claims to help you invest into travel industry and reap 1% daily returns, if you try to buy any of the coins, they’ll redirect you to the official investor.gov site to wise you up on the problems of scamming.
In summary, don’t give in to the temptation of greed — money doesn’t multiply without any effort. Stay away from the old charlatan tricks.
3. Choose regulated projects
Because a large chunk of the industry is still operating in a legal grey area, there is a high probability of running into legal problems.
Major regulators on both sides of the Atlantic are threatening to close down crypto companies, which fail to comply with Securities laws. Some countries in the East already forbid and sanction everything that has even a subtle whiff of crypto.
If you invest into projects that try to avoid the law, you’re essentially juggling a ticking litigation bomb that could explode at any second.
Research what you’re investing in. Most ICO companies offer utility tokens, which are the legal equivalent of video game coins and have no inherent value. If the issuer decides to run to Miami Beach and take your money with him — there’s no law that stops them from doing that.
According to Laimonas Noreika, the chief executive of an ecosystem specialising in Security Token Offerings called DESICO, “if you invest in unscrupulous firms and your money is stolen, there is no consumer insurance to make you whole again. Your savings perform a majestic magic trick — they simply disappear without a trace”.
Instead, Noreika suggests investing in projects offering security tokens, which are issued in accordance with securities’ legislation and are the legal equivalent of any other tradable financial asset. To understand the difference between the two asset classes, continue reading here.
Also, Noreika stresses that investors makes sure that the company they’re dealing with is observing Know-Your-Customer and Anti-Money-Laundering rules, and acts in accordance with Fiduciary standards. “Only then can your investment be considered safe,” he says.
Breathe. Make yourself a cup of coffee. Read a couple more articles about crypto, review a couple more ICO firms. You’ll make a decision eventually. Don’t rush into things hot-headed.
Cooler heads prevail.