There has been a lot of debate about whether Bitcoin and other forms of cryptocurrencies are financial assets. Cryptocurrencies are digitally transferable assets that cannot be copied or duplicated. Blockchain technology, also known as distributed ledger technology, allows cryptocurrencies to be transferred hassle-free without the involvement of a financial institution monitoring the transactions. Bitcoin is one of the most popular cryptocurrencies in the market right now. Let's examine the question of whether Bitcoin can be considered a financial asset. Before that, let's look at some common mistakes that people tend to make when investing in cryptocurrency.
Four major mistakes made when investing in cryptocurrency:
- Buy high, sell low- As beginners, people tend to panic when they see the value of Bitcoins going down. They immediately sell their Bitcoins. This is a major mistake that pushes investors towards huge losses. Therefore, when they see that the value of Bitcoins has risen relatively high, they tend to buy as much as possible. They anticipate a further rise in value. This is not necessarily the case and often results in long-term losses. The cost average can be used to make smart investment choices. The investor should divide the total amount he intends to invest into smaller portions. He should ideally invest each part of the sum at different times. This ensures that he buys Bitcoins at different values. If he thinks there will be an increase in value, he can invest some of his money. So when the value falls instead of rising according to his predictions, he will still have enough money to invest in the reduced value of Bitcoins.
- Buy because cryptocurrency is cheap :There are investors who avoid investing in Bitcoins because there are other cheaper forms of cryptocurrencies available in the market. This should be avoided. The most important cryptocurrencies in the market are Bitcoins and Ethereum. If an investor chooses not to invest in these due to their high market value, he is unable to understand the concept of market capitalization. Bitcoins are more valuable, so bitcoin returns are also high. Moreover, if the price of Bitcoins ever drops extremely low, there will still be enough people ready to buy them. As for other lesser cryptocurrencies, it may not be the same.
- No diversification :Another important criterion to respect when making an investment is to invest in variety. The same is true for investing in stocks. In the case of cryptocurrencies, Bitcoin and Ether are the two most important. So, investing part of your total sum in Bitcoins and the rest in Ether would be a smart move. The value of cryptocurrencies at any given time is full of uncertainties. In such circumstances, keeping your options open is a sensible choice to make. In the event of an unpredictable decline in either of their values, the other investment will still offer some hope. The investment division doesn't even have to be 50-50. It can be an investment of 75% of the money in Bitcoin, and the rest in Ether, or vice versa. It's just a way to have all your options open.
- Buying more than you can afford to lose:Most beginners tend to fall into this abyss of gambling. More than an investment, the nature of unpredictability in this field makes it almost as good as the game. A beginner who has not yet understood the structure of the market and who is in the early days of managing his finances is sure to spend far too much in the hope of substantial returns. More often than not, the opposite happens and he ends up losing more than he could afford
After discussing the setbacks of reckless investing, you can check out Bitcoin Mastery to learn more.
Bitcoins were introduced to the market simply as a medium of exchange. They are intangible in nature. There are not many spaces that accept payment in terms of Bitcoins. The existence of Bitcoins has not been authorized by any central authority. It is just a group of investors and curious minds that mine and trade Bitcoins. Therefore, Bitcoins cannot be qualified as financial assets despite their role in investment.
