Investing in Bitcoin? How to avoid these 2 costly pitfalls

Crypto investors haven’t let volatility keep them out of the virtual market

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Bitcoin (CRYPTO: BTC) is edging higher, up 0.4% over the past 24 hours to US$34,659 (AU$45,604). That still leaves the world’s biggest token a long way off its mid-April record high of US$64,829.

Ethereum (CRYPTO: ETH) is having a stronger run, up 7.8% in 24 hours to US$2,126. That also remains well below Ether’s own mid-May record high of US$4,382.

Yet the recent falls don’t appear to be dissuading millions of retail investors from buying – or intending to buy – cryptocurrencies.

In fact, a recent survey conducted by cryptocurrency exchange Kraken and YouGov revealed 40% of Aussie millennials plan to invest in crypto assets as a way to save for a home.

And it’s not just Australians. According to Chainalysis, even gold-hungry Indians are snapping up crypto, with some US$40 billion worth of crypto investment over the past year.

With interest in Bitcoin, Ether and other cryptos showing no signs of abating, the Motley Fool reached out to Leigh Travers, CEO of blockchain consulting and development services company Digitalx Ltd (ASX: DCC), for his unique insight.

How China’s crackdown is long-term bullish for Bitcoin

You’ve likely heard about China’s crackdown on Bitcoin mining, along with the ban on Chinese financial institutions facilitating crypto transactions.

With 65% of global Bitcoin mining taking place in China in 2020, the crackdown has fuelled the price falls of the world’s biggest cryptos.

However, Travers told the Motley Fool he sees this as a short-term issue. In fact, he thinks Bitcoin and Ether are likely to come out better for it:

Our view on the two biggest risks for Bitcoin at the start of the year was China dominance in the market, as well as ESG (environmental, social, and corporate governance) headlines about carbon usage of Bitcoin mining.

The current short-term exodus of Bitcoin miners and Bitcoin traders out of China is absolutely long-term bullish. China had a significant percentage of Bitcoin miners that were powered by coal. That’s particularly true during their summer, as in winter it’s more hydro.

Travers points out that with Bitcoin miners fleeing Chinese soil, more activity is heading elsewhere in Asia and to the US state of Texas, with a greater percentage of renewable energy in the mix.

“To see how quickly both of these key risks are being reduced is giving us a significant increase in confidence for the long-term outlook for Bitcoin and the digital asset sector,” Travers told us. He added:

As Bitcoin moves towards a more renewable energy mix, and as Ether transitions towards a security model that utilises 99% less energy, the ESG concerns fade and some of the positive elements of ESG that digital asset markets provide will become evident.

El Salvador adopting Bitcoin as legal tender is one example of this, Travers said. He noted that financial inclusion in the Latin American country is only around 30%.

“A digital wallet that enables access to markets that have governance frameworks programmed is a positive opportunity for many,” he said.

Avoid these 2 big crypto pitfalls

While some crypto investors have made fortunes, others have lost some or all of the money they invested.

We asked Travers about the most common scam used to part would-be Bitcoin investors from their hard-earned money. He said:

Any direct emails from private cryptocurrency investment funds must be avoided. There are zero licensed private retail investment fund products in Australia, or the world, from my knowledge. At best they are offering you an unlicensed investment product. At worst, it could be a scam.

Travers also stressed never to invest more than you feel comfortable with:

The sector is highly volatile. If you haven’t done any research and the investment size is too large, you’re much more likely to be a seller when prices drop. If you have a strong investment thesis and your investment is sized appropriately, it is much easier to hold for your investment time horizon.

The best 3 cryptos to buy

We rounded off our questions by asking Travers which digital tokens he believes may outperform. He said:

Bitcoin and Ether are the digital assets experiencing the most institutional growth and really should be considered first before any other digital assets. We are seeing some incredible growth from Uniswap over the past 6 months, so that’s another that we like.

Uniswap (CRYPTO: UNI) is currently trading for US$18.30, up 8.0% in the past 24 hours.

According to CoinMarketCap, Uniswap is “a popular decentralised trading protocol, known for its role in facilitating automated trading of decentralised finance (DeFi) tokens”.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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