Virtual assets have come a long way from the initial purpose of being a payment tool, evolved into various different types, and now become a much-talked-about alternative investment option. The question of whether investors should invest in virtual assets has become a hot topic.
While different people may choose different investment products, the basic principle remains the same, i.e. consideration of your investment goals, tenor and risk appetite, then work on the asset allocation and select appropriate investment products.
Evaluate your risk appetite carefully
It is crucial to evaluate your risk appetite carefully, especially when it comes to virtual assets. Looking at historic price volatility of virtual assets, it is no wonder they are regarded as high risk. For instance, bitcoin has experienced two massive plunges in the past five years, dropping over 80% between December 2017 to December 2018; and 70% between November 2021 to November 2022 respectively. Other virtual assets are more volatile than bitcoin, and some even recorded total losses. Virtual assets are generally not backed by physical assets. They are highly speculative and sensitive to market news and rumours. A post on social media may lead to significant price movements within a short period.
Moreover, due to their virtual and digital nature, virtual assets come with different types of risks. Therefore, investors should consider carefully whether they can bear the potentially substantial losses before investing in virtual assets.
Avoid YOLO and FOMO
There are a lot of discussions and sharing around virtual assets on social media and you may have heard about the terms "YOLO" and "FOMO". YOLO, You Only Live Once, implies people would dedicate themselves for greatest return as we only live once. FOMO, Fear Of Missing Out, applies to the situation in which people speculate on virtual assets for the fear of missing out the opportunities to profit. Virtual assets are innovative products and have accumulated impressive price increases in the past. Coupled with market sentiments, many become too focused on the upside to see the true nature and risks of virtual assets. If investors just follow the herd without understanding the products before investing, it is no different from gambling.
The importance of DYOR
Herd mentality and investing in something that you do not understand are common investment mistakes. Therefore, make sure you "DYOR", Do Your Own Research, another acronym often used in the virtual asset market. There are two meanings to the term. Firstly, before investing in any virtual asset, investors should understand its nature, operations and risks. There are different kinds of virtual assets, and each has different features and risks. Hence, it is crucial to fully understand the product before making investment decisions. Secondly, in the world of social media, there are many sources of investment advice, analysis and news on virtual assets. To DYOR also means to not follow the hype blindly. Always do your own research and think independently and critically.
In conclusion, virtual assets are highly volatile and associated with different types of risks. If you plan to invest in or include them in your portfolio, it’s crucial to do your own research and understand the features and risks thoroughly. Make sure to evaluate your risk appetite, diversify your portfolio and avoid following the crowd blindly. Lastly, there are many scams relating to virtual assets which are of different tactics. Investors should remain vigilant to avoid falling prey to these scams.
