How to invest safely in crypto — our top 4 tips

How to invest safely in crypto — our top 4 tips

Cryptocurrencies have hit the headlines recently for all the wrong reasons. In May 2022, the value of popular cryptocurrencies — including so-called “stablecoins” such as Bitcoin — plummeted to record lows after altcoin Terra and its sister coin, Luna, crashed. 

The damage was massive, causing losses of $60 billion and leading many critics to call the crypto dream into question. But crypto prices have dropped in the past, and they always bounce back. In fact, Allied Market Research predicts the global crypto market will continue to grow and triple its value by 2030 — which is why it’s essential to avoid panic-selling or acting out of emotion.

The African crypto market is also growing, spurred on by the promise of improving personal finance through crypto trading. Between July 2020 and June 2021, Africans received $105.6 billion of crypto — a 1,200% increase from the previous year. 

While only 48% of the continent’s 1.4 billion inhabitants have access to traditional financial services like banks, smartphone ownership is on the rise. For many people across Africa, this means that cryptocurrencies are more accessible than bank services.

So it’s hardly surprising African business leaders and influencers such as Itireleng Alakanani — aka “The Bitcoin Lady” — and John Wainaina Karanja, co-founder of Melanin Solar, have jumped on the opportunity to bring crypto to the African people. In the process, they’re accumulating wealth for themselves and their communities.

Maybe you’re also tempted to jump on the bandwagon but have doubts about the volatility and security of crypto. Is it really safe to invest in digital currency in light of recent events? If so, what are the risks, and how can you mitigate them?

These concerns are shared by millions of would-be crypto investors across Africa and worldwide. To help you navigate the murky waters of crypto, we’ll cover the main risks of investing in virtual currency and provide our four top tips to invest safely. 

Top 4 tips for investing safely in crypto 

Of course, just because risk is involved, it doesn’t mean you shouldn’t buy cryptocurrency. When done safely, it can help build your wealth as part of a diverse portfolio of assets. So here are our top four tips for investing in crypto with minimal risk.

1. Know the risks

Just like the stock market, cryptocurrency values are subject to various elements that can cause prices to take a dive. 

A few of the factors that affect crypto value include:

  • Supply and demand
  • Mining costs
  • Competition (i.e., the number of altcoins on the market)
  • Crypto exchanges — if a coin is available on more than one cryptocurrency exchange (such as Coinbase), more people can invest in it and drive up the price
  • Social media — for example, Elon Musk has influenced the value of Dogecoin several times
  • Government regulations

2. Start small

Before Bitcoin was even a twinkle in Satoshi Nakamoto’s eye, investors had a golden rule: never invest more than you can afford to lose. And it still stands true today — as illustrated by the recent market crash.

To mitigate the potential risks, start with a one-time crypto investment with a small percentage of your money. Observe the value of this currency over time, and then decide if you want to make more regular investments.

3. Stay away from your savings

You probably have a few funds set aside. Perhaps you’re saving for a house or putting money away for a rainy day. 

Avoid using those savings to invest in crypto — otherwise, you could be forced to cash in your coins in an unfavorable market if you need to access your funds in an emergency.

4. Research, research, research

And did we mention research? With all the risks involved in crypto investing, it’s safe to say that doing your homework is a must. 

Plus, the crypto world is constantly shifting, so continuous learning is essential if you want to ride the waves of the market successfully. 

This handy guide rounds up the best resources for beginner, intermediate, and advanced crypto investors.

What are the risks of investing in crypto? 

So is it really possible to make your fortune with crypto? It definitely has the potential, but results are far from guaranteed — as highlighted by the recent crash that caused millions of people to lose their life savings in a matter of days.

The cryptocurrency market is a dynamic place, with new currencies constantly emerging and disappearing. Crypto value is tied to confidence, so when investors get spooked, crypto goes into a tailspin.  A big enough change in speculative demand can prematurely crash a coin — as demonstrated by the Terra/Luna crash.

All of this means that if you want to invest in crypto, you need to know the risks — so here are three of the main ones to have on your radar.

1. Limited legal regulations

Many aspects of the crypto market are still unregulated, undergoing ever-shifting regulations. Unlike banks or other financial institutions, there is no central authority controlling the value of cryptocurrencies or providing users with protection against fraud and theft. Governments are scrambling to get crypto under control, but for now at least, it’s almost impossible.

This is part of the reason why crypto is so unstable, as the sudden introduction of regulations can cause prices to plummet — which is exactly what happened in 2021 following a crypto crackdown by the Chinese government.

The lack of regulatory control also means very little legal protection for transactions, unlike traditional payment methods such as credit and debit cards. For example, a credit card provider will usually reimburse you for fraudulent purchases in your name. With crypto, no such mechanisms exist.

2. Crypto scams

Online scammers have been around since the dawn of the internet, so it should be no surprise that malicious parties are out there trying to profit from people’s limited knowledge of cryptocurrencies like Bitcoin. 

In 2021, scammers stole a whopping $14 billion from unsuspecting crypto holders. So how do you keep your crypto safe? By being aware of some of the ways scammers will try to dupe you.

Some common crypto scam tactics include:

  • Demanding crypto-only payments
  • Phishing emails asking for crypto wallet info
  • Requests to send cryptocurrency to your bank
  • Romance scams where scammers use dating apps to convince unsuspecting matches to send them crypto transfers
  • Ponzi schemes
  • Digital collectibles and games
  • Disappearing coins — scammers encourage users to invest in a newly-minted coin or token, driving up the value. Then, the developers cash out and disappear in a move known as the “rug pull.” This recently happened to thousands of Kenyans who lost one billion shillings in the Bitstream Circle scam.

3. Non-refundable transactions

All transactions recorded on the blockchain ledger are permanent and non-editable. This technology is part of what makes digital currency so secure. 

On the flip side, it means crypto transfers are irreversible, and there’s no customer service agent to process a refund for you, so you need to exercise extreme caution when sending crypto assets.

Start your crypto adventure with Chipper

Anything worth having comes with a certain level of risk, and cryptocurrency investment is no exception. 

But don’t let that hold you back. With the right investment strategy and precautions, crypto presents an exciting opportunity to learn, make smart investments, and grow financially.

With Chipper Cash, you can use your local currency to buy Bitcoin and start trading across Africa instantly. 

It also allows you to transfer money anywhere in Africa from any other part of the world. Request early access and start your crypto adventure today.