This post was written in collaboration with Luno Discover. While we are financially compensated by them, we nonetheless strive to maintain our editorial integrity and review products with the same objective lens. We are committed to providing the best information in order for you to make personal financial decisions with confidence. You can view our Editorial Guidelines here.
If you’re a crypto beginner, the world of cryptocurrency can be thrilling and intimidating at the same time. On social media, it can seem like everyone and their mom is buying cryptocurrency or NFTs, so it’s totally normal if you feel a bit of pressure to dive into the crypto space, too.
However, just like how NASA’s astronauts run through rigorous checks and brush up on knowledge before takeoff, it’s essential for crypto investors to do their homework before taking the plunge. Your portfolio might be a sea of red right now and you have no choice but to HODL; instead of staying stagnant, why not use the time to actually figure out what you are investing in?
What must I know before investing in crypto?
All investments, even established asset classes like stocks, bonds and gold, come with risks. (You knew that, right?) It’s just a matter of how high the risks are, and your accompanying risk management skills.
While “boring” investments like bonds and fixed deposits are low-risk and historically have lower returns, “exciting” ones like crypto, NFTs and DeFi are among the highest-risk investments you can find out there. Here are some of the main crypto-specific risks:
- $hitcoins: Scammy tokens or crypto projects that are purely driven by hype and deliver no value whatsoever.
- Volatility: Due to the infancy of the sector, volatility is expected to be much higher than your “boring” investment classes. With a smaller pool of buyers and sellers compared to legacy markets, each action taken on the market has a much larger impact. Sharp price swings that can be an emotional roller-coaster for the unprepared investor!
- Errors & Hacking: Cryptocurrencies are digital, and digital means internet, means … yes, open to phishing scams, identity scams, hacking and more.
- Manipulation: Those infamous “Pump & Dump” schemes where masterminds psych others to buy and raise the token’s price (pump), only to abruptly sell their holdings and vanish (dump).
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Ponzi: These fraudulent schemes promise investors high risk and low return. How it makes money is that new investors’ money flows to the earlier investors. However, Ponzi schemes eventually wind up when new investors dry up and this can’t fund the returns promised to earlier investors. The recent Terra Luna incident has been likened to such a scheme as its value was driven by the entry of new investors and not tied to a fundamental asset. (Again, emphasising the importance of knowing what you are investing in.)
Whoa! With so many risks, you might be wondering — is cryptocurrency even legal or regulated in Singapore?
Well, the Monetary Authority of Singapore (MAS) is certainly watching cryptocurrency closely and does not recommend it to retail investors (i.e. ordinary people like you and me).
It is NOT banned, however. In fact, MAS has granted digital payment licences or in-principle approvals to a handful of platforms such as Luno Singapore. These licences are given only to platforms with the best risk management practices, responsible management and good track records.
What else do I need, to be prepared?
Another super important thing you need before jumping on the crypto bandwagon? Knowledge.
Before you take the plunge into crypto, you definitely need to know your Bitcoin from your Ethereum, and your NFTs from your DeFi.
Ahh, easier said than done, eh?
The Crypto Verse has its own colourful constellation of terminologies, concepts and many other complexities to read up on. There’s so much info out there to digest, it can feel like you need a PhD in Crypto Studies before actually becoming confident to dive in. All we can say — everyone can’t know everything, keep learning! (Don’t worry, we’ll have some “study tips” later on.)
So, are you a crypto beginner or do you already have what it takes to be a seasoned crypto-naut? Take this quiz to find out how ready you are.
Quiz: How well do you know crypto?
Completed the quiz? Here are the 4 types of crypto “astronauts” — find out what your result means for your upcoming crypto journey.
- Rookie Rover
- Prepared Pilgrim
- Savvy Space Wanderer
- Wary Watcher
Rookie Rover: You’re interested in the space, but you’re still a crypto-n00b at this point. Not to worry, though, this is super easy to rectify — you just need to put in a bit of effort to catch up.
Prepared Pilgrim: You’ve obviously done your homework and know your crypto basics… but only just enough to get by. It’s high time to graduate from Crypto 101 and start unravelling the mysteries of the crypto universe! The deeper you dive, the better equipped you’ll be to spot dangers — and the higher your chances of a rewarding space journey.
Savvy Space Wanderer: Ooh, someone’s been paying attention! You know your crypto stuff all right. Friends might even look to you to give ‘em guidance on their own beginner journeys. But we’re all about lifelong learning here — plus the crypto space evolves at the speed of light — so do make it a priority to stay up to date on the latest developments, too.
Wary Watcher: You love learning about the mind-tickling field of cryptocurrency and observing all the excitement therein… but from the comfort of home, through your telescope! Well, there’s no shame in being an armchair academic. But if you ever feel like you might want to venture into the crypto space eventually, you know where to go.
In partnership with: Luno Discover — your guide to all things crypto
Whether you’re a beginner or a dab hand at this crypto thing, knowledge should play a key role in your journey. It’s super important to DYOR (Do Your Own Research) and know what you are investing in rather than taking a friend’s or influencer’s word for it. You’re investing YOUR money, after all.
Levelling up your crypto knowledge is easier than ever before with Luno’s crypto education hub — Luno Discover, your guide to all things crypto without the hype.
No time to digest and want to snack on crypto content instead? Subscribe to Luno Singapore’s Telegram Channel for no-jargon crypto education and news in bite-sized pieces.
This partnership between MoneySmart Singapore & Luno Discover and the content created is for educational purposes only. Luno Singapore has been awarded in-principle approval from the Monetary Authority of Singapore (MAS) under the Payment Services Act 2019. Cryptocurrency is a high-risk investment. The value of cryptocurrency can fluctuate significantly and you may lose the capital you invest. Before investing, we urge you to educate yourself about cryptocurrencies and to familiarise yourself with the risks involved, which are detailed in Luno’s Risk Warning.
This article was not written by the licensed entity, MoneySmart Financial.