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What to look out for when investing in cryptocurrencies

What to look out for when investing in cryptocurrencies
Written by Chidera

What is Cryptocurrency?

Most of us have heard a lot about Bitcoins, some of us have invested in it a little bit, but about 90% of us are still clueless about how to make money from it.

cryptocurrency is digital money created for and primarily used over the internet.

It serves as a means to stabilize banking and make internet transactions between nations.

it works by a decentralized technology using Blockchains that are secured by a cryptographer quite unlike central banking systems.

A Blockchain is a public transaction database, a ledger that is resistant to modification of the data contained in it.

Why cryptocurrency?

There is quite a lot gain from investing in cryptocurrencies,

First, you can make good money from it.

Secondly internet transactions are so much easier due to the fact that exchange rate between currencies is quite minimal.

Thirdly, banking with cryptocurrencies provides you with a great deal of anonymity in your transactions.

Lastly, all ones transactions with it cannot be faked or reversed.

Today, internet banking has become so much fun and worthwhile. why would you want to miss out.

But, How do you tap in?

Its quite alarming and very disturbing to see someone equate the value of a cryptocurrency solely based on the cheapness of the price.

In fact the price, is actually irrelevant, only the market supply is important. Capitalizing on the price is a surefire way to failure.

Don’t worry, investing is pretty easy once you learn the ropes, Here’s why, you only need know about the inflation rate. Excited to sale

Why inflation?

Inflation is a a rise in the price level of goods and services in an economy over a period of time.

This means that the value of the currency of the particular region decreases with time.

Inflation both negative and positive impacts on the economy in question.

Positive effects include reducing of the debt of the economy while negative effects includes discouraging investments.

Steady inflation rate reduces the issues of economy recession and stabilizes the economy of the given region.

Inflation in any currency  affects that currency to a great extent. A widely accepted theory of inflation is that the quantity equation of money relates  to the money supply, its velocity and nominal value of exchanges. This is most important for long time investments. Read more about Youtube

How do they relate?

Inflation rate reflects strongly on the value of any currency.

It’s wiser to calculate the price of the cryptocurrency in relation with inflation rate and true market supply.

For instance, imagine you have two currencies, both being almost identical except currency X has 50% inflation while currency Y has 0% inflation rate. And now, let’s say you invested about #1,000 in a single day on both currencies and the market cap increases by 50% each year.

In 10 years  your investment in currency X will be valued at half the previous value while that in currency Y will have increased outrageously to about 5 times the amount.

How to calculate the inflation rate on any cryptocurrencies

The simplest way to calculate this by this formula:

Inflation rate = Number of coins per year/ Number of currently circulating coins

This method is a surefire prescription to undergo before all investments to prevent failure in this business venture.

Investing in cryptocurrencies is a worthwhile venture when compared other banking systems.

This is because its benefits far outshine other  banking systems that exist today.

To become better at this form of business, always follow this step

  • Look at the number of that particular coins made a year
  • check out the amount of coins in the present year
  • analyze the inflation rate
  • using my above illustration, check if the investment is worthwhile
  • If OK, go ahead and sow in, if not check for another one
  • Remember, the cheapness of the coin is not worth the pitfalls. Be smart!

Please if you have more questions and suggestions, kindly post in the comment box below and lets discuss it.

 

About the author

Chidera

Chidera is an experienced freelance blogger and social media enthusiast. Click here to see all my posts

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