Making Sense of Cryptocurrency: A Millennial’s Guide to Investing in Bitcoin and Beyond

Making Sense of Cryptocurrency: A Millennial’s Guide to Investing in Bitcoin and Beyond

Written By Katie Gomez

Everyone has heard of cryptocurrency by now. In the last decade, cryptocurrencies like Bitcoin have become the focal point of investing innovation, especially for younger generations like Millennials. However, given all the misinformation out there on the internet and social media, cryptocurrency is not something we should trust to dive into straight away just because it is popular and seemingly everyone is doing it. 

Diversification of portfolios is crucial, so millennials should invest in other assets, including cryptocurrencies. That said, crypto has become more than just another asset to diversify your portfolio from stocks. Nowadays, many Millennials argue that crypto is the future currency, so they tend to overlook other assets and focus solely on that. However, it is never a good idea to put all your eggs in one basket, especially crypto’s basket (given recent scandals like the FTX implosion). Nevertheless, cryptocurrency may be a valuable asset to make your portfolio more lucrative when approached correctly. 

Investing in cryptocurrency is similar to investing in the stock market because it is highly volatile. However, unlike the safety of investing in more conservative bonds, crypto, and stocks are higher-risk. Despite the risk involved, it is clear that cryptocurrency has gone from an overlooked asset to a substantially popular investment. 

Everyone knows what cryptocurrency is, but most people still need clarification about how it works, as it is a complex system. Cryptocurrencies are a form of digital currency secured through cryptography and computer networks (Royal, 2023). Unlike traditional equities governed by central institutions like government or banks, cryptocurrencies are unregulated. This facet is incredibly enticing to millennials, who have no trust or loyalty to extensive banking systems after most of them watched them repossess their parent’s houses during the 2008 economic crash. Another benefit some people see in using cryptocurrencies is that all transactions maintain the semi-anonymity of both buyers and sellers. 

A how-to guide to investing in cryptocurrencies 

1.) Establish your risk limit: 

Cryptocurrencies are not safeguarded like other assets to prevent significant slides. They are highly volatile/high-risk investments prone to dramatic free falls. Therefore, before investing, you need to become aware of potential short-term losses and set up a plan to avoid exacerbating your losses. Rule of thumb: invest only as much money as you can afford to lose (never risk scared money—money you need to survive). Investing sacred cash is never a good idea, so even if it means investing less than you want to, you must avoid using bill-paying/survival money. Additionally, crypto is yet to become a primary source of income, so it should be used as a supplementary source to add to your portfolio, at least for now. 

2.) Do your research before investing:

First, it helps to review that Bitcoin is not the only cryptocurrency you can invest in. Anthough, it is the most popular, now standing at a blockchain at 415 GB. Consider other options before jumping on the bandwagon. However, you must be careful choosing which one(s) you choose because if the FTX scandal has taught us anything, we must research and ensure that what we are investing in is legit. Cryptocurrency is not gold; we cannot physically hold it and see its value. It exists in the metaverse, which leaves its value constantly in flux and intangible. 

Types of Cryptocurrencies:

  • Equity tokens: this form of crypto represents the equity in an underlying asset (i.e., company stock or equity in a particular property). Investing in equity tokens is similar to owning traditional stocks—the only difference is that you register on a blockchain vs. a database or certificate. For example, you can purchase Tesla and Paypal through stock shares or tokenize through the blockchain as an equity token. 
  • Utility tokens: These are tokens used to raise funds for new projects, usually serving some purpose for developers. Unlike equity tokens, these are not considered ownership of an asset. Ex: BAT or basic action token
  • Asset-backed tokens: These are essentially the digital equivalent of an IOU. Since these tokens have no inherent value, they rely on being backed by some source of tangible collateral, such as gold, gems, paper money, or even art. Any physically real asset can become tokenized into an asset-backed token. 
  • Intrinsic tokens: These tokens are also known as “native” or “built-in” tokens; they are a source of digital currency whose value is determined solely by the market. They do not represent anything; they exist as money deemed valuable by the market. BTC (Bitcoin) or ETH (Ethereum) are the most popular examples (Royal, 2023).

3.) Beware of FOMO: Contrary to popular belief, investing is not a trend bandwagon that you should hop on and off when the majority tells you to do so. Instead, investing is about trusting your research and instincts and tuning out others’ opinions when necessary, which is challenging, especially for younger investors. So instead of basing your reasoning on fear of missing out (FOMO), do your due diligence and make decisions based on your best interest, not the collective. 

Additionally, it might be challenging to resist the temptations of the particular meme coins or tokens as you see their values rise (sometimes as drastic as 2000x in 24 hours). However, unlike bitcoin, these meme coins remain an unstable and high risk, so invest wisely. Investing on a whim or trend due to bandwagon syndrome or FOMO is ubiquitous, especially with millennials, but it is the kiss of death for investors. 

4.) Use a secure exchange! When investing in cryptocurrency, your assets are only as vital as the exchange you use to trade them. There are various risks when investing in crypto because they are a channel of unregulated networks. Utilizing insecure exchanges leaves investors vulnerable to hacking and server failures. Therefore, before you invest, ensure your exchange is reputable by checking reputed payment gateways and can handle high traffic (Ghosh, 2022).

In conclusion, before you invest in crypto, make sure you take the proper precautions instead of impulsively jumping feet first onto the bandwagon (even though that can be difficult for millennials). Before you decide to invest, make sure you take the time to review and enact the proper precautions. Although it will require patience and trial/error to understand the technology, it would not be wise to dismiss it altogether. That said, the government is bound to recognize cryptocurrency as an asset in the future, so the sooner you learn to maneuver the metaverse market, the better. Although it will require patience and trial/error to understand the technology, it would not be wise to dismiss it altogether.