It’s not just bitcoin. There are now hundreds of cryptocurrencies, which are a type of digital currency, on the market. They’ve been publicized as a fast and inexpensive way to pay online, but many are now also being marketed as investment opportunities. But before you decide to purchase cryptocurrency as an investment, here are a few things to know:
- Cryptocurrencies aren’t backed by a government or central bank. Unlike most traditional currencies, such as the dollar or yen, the value of a cryptocurrency is not tied to promises by a government or a central bank.
- If you store your cryptocurrency online, you don’t have the same protections as a bank account. Holdings in online “wallets” are not insured by the government like U.S. bank deposits are.
- A cryptocurrency’s value can change constantly and dramatically. An investment that may be worth thousands of dollars on Tuesday could be worth only hundreds on Wednesday. If the value goes down, there’s no guarantee that it will rise again.
- Nothing about cryptocurrencies makes them a foolproof investment. Just like with any investment opportunity, there are no guarantees.
- No one can guarantee you’ll make money off your investment. Anyone who promises you a guaranteed return or profit is likely scamming you. Just because the cryptocurrency is well-known or has celebrities endorsing it doesn’t mean it’s a good investment.
- Not all cryptocurrencies or the companies behind them are the same. Before you decide to invest in a cryptocurrency, look into the claims the company is making. Do an internet search with the name of the company and the cryptocurrency with words like review, scam, or complaint. Look through several pages of search results.