3 things to note before having Cryptocurrencies as part of your portfolio.

If you have been following cryptocurrencies, you should know that Bitcoin has recently surpassed USD$18,000 and is moving towards its previous high of USD$20,000 while Ether is recording an impressive YTD return of 280%. Before you get too excited and start to FOMO (Fear Of Missing Out), Below are 3 important things to know before adding cryptocurrencies to your portfolio.

1) First, know the Risk of investing in cryptocurrencies. As much as you have heard about the massive gains that the crypto brings, You also need to hear about the massive risk that comes with it. Before you embark on your crypto journey, it is important to understand the risk that you will be exposed to.

• Volatility -  Because the overall market capitalization of crypto is still relatively low (about $600B compared to $9T for gold) a small force can have a large effect on prices. Coupled with the fact that there are tons of speculation happening in the crypto world, you can see easily price swings in double digits % daily.
• Security - It is important to know that your crypto investment is in good hands. You can store your cryptocurrencies in trading platforms/exchanges or you can store it in your own 'wallet' (you can read more about hot and cold wallet here). The risk associated with storing your investment in trading platform/exchanges are that most trading platform and exchanges are centralized and can be hacked by malicious actors. This have actually happened quite a number of times in exchanges around the world. The risk of storing your crypto in your own wallet on the other hand is that you are fully responsible for taking care of your Password (private key) to your wallet. There are no reset password or recover passwords and if you loss or have your password stolen, you can kiss your investment good bye.
• Going to zero - Yes it's possible for Cryptocurrencies to go to $0. Cryptocurrencies are essentially not backed by any value other than that faith of people using it. Once that faith is gone and no one wants to use it, the crypto will essentially be worthless. However, this is very very unlikely for the major cryptocurrencies including Bitcoin with the recent adoption from major players and banks.

2) Second, know that Bitcoin is not the only cryptocurrencies available. Although bitcoin is the largest cryptocurrencies in terms of market capitalization, it's not the only one and there are Bitcoin Cash (BCH), Litecoin (LTC) and Ethereum (ETH)..… just to name a few. In fact, as of today, there are close to 7000 cryptocurrencies in the crypto world accordingly to coinmarketcap. Being the largest cryptocurrencies doesn't mean it is the best investment. You will need to understand more about the crypto in which you want to invest in which brings me to the last point.

3) Lastly, know the technology underlying the cryptocurrencies - Just like knowing the business of a stock you are investing in, you will need to know the underlying technology of the cryptocurrencies and what problem it is trying to solve. This will give you conviction in your crypto investment so that you wouldn't be affected by the wild swing in prices and hence making foolish decision.

Despite the risk that the crypto world brings, I would still encourage you to keep a small percentage of your portfolio in this up and coming virtual assets. However please go in with your both eyes wide open. For me, Crypto still forms approximately 10% of my entire portfolio and you can see the wild ride I was having in my crypto journey here.

Happy Cryptoing!

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