What to Know before Investing in Digital Currencies

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Bitcoin and other virtual currencies have been on the rise this year, surpassing the returns seen in stocks, bonds and most other investments. No wonder many investors are wondering if it is worth their money especially with the gradual rise in value. Digital currencies first emerged about 10 years ago and do not necessarily have a physical form, unlike coins or notes but no doubt that they have made headlines globally, some started as digital currencies while some have evolved to involve investment schemes. The question of should I go all in may be in your heart, however before you rush in, you should heed the advice of experts who are asking investors to understand the potential and future risks of these currencies.

It is true that the price of bitcoin has tripled since the beginning of the year, surging above $3,000, the amount of cash in virtual currencies has ballooned. The market cap for cryptocurrencies has definitely increased according to a cryptocurrency tracker , but some experts say the rising prices of these cryptocurrencies may be based on speculation.

Investors are focusing on what they think the digital currency will be worth in the future — and not on how they are being used today. Because the market for cryptocurrencies is still small, the price of these digital currencies can swing wildly up or down. The valuation of digital tokens is usually not transparent, and is highly speculative. Transparency could be limited as there might be little publicly available information that could help you gauge the fair value of these currencies.

Beware of investment schemes involving digital currency that promise high returns. The higher the promised returns, the higher the risks. There is a high risk that you could lose a portion or your entire investment amount. In the worst-case scenario, the digital currency could be rendered worthless.