The lure of earning vast wealth by investing in cryptocurrency has drawn investors from all over the world in recent years, but the collapse of much of that value in recent months provides a sobering lesson in the market’s volatility.

Local experts say this volatility should drive home to anyone considering crypto one critical necessity before getting into the market: do your own research.

Learn before you earn

Gordon Gulledge, the in-house cryptocurrency specialist at Greenville’s Foster Victor Wealth Advisors, says he got involved with crypto about nine years ago, in part because of increasing curiosity from his clients. He quickly learned there are some fundamental aspects of this emerging market that any investor should always keep in mind.

The blockchain technology upon which cryptocurrency is based has huge long-term potential for a variety of applications, Gulledge says. But cryptocurrencies themselves are highly speculative and thus tend to be inherently volatile as an investment.

What has happened to the value of Bitcoin, the first cryptocurrency and still the most widely traded, is illustrative, Gulledge says. It has lost about 60% of its value from a high of $69,000 per Bitcoin in November 2021 to a low of about $25,000 in early May 2022.

“You’re only in so much control, whether it’s with traditional markets or this market,” Gulledge says. “‘Do your own research’ sounds so cliche…but once you’re in that market it can go to zero pretty quickly.”

He also says much of the hype generated around crypto is driven by social media and that for every individual who reports making a lot of money in crypto, there are probably “10 or 20 people” who’ve lost a lot of money.

Gulledge says reports of people making millions or billions of dollars in crypto can trigger a get rich quick mentality that is never a good reason to jump into such a volatile market.

Dylan Flasky, a cryptocurrency and NFT (non-fungible token) consultant in Greenville, describes such impulse as FOMO — the Fear of Missing Out. He has been active in crypto for years and says if you’re hearing a lot about a crypto investment opportunity on social media, it’s probably too late.

“There’s always winners and losers in everything,” he says. “That’s why it’s important to be educated…You have to be highly educated on what is going on in the market.”

Don’t be in a hurry

A corollary of doing your own research, Gulledge says, is not rushing in.

“There’s no need to rush,” he says. “Take your time [and] learn about what you’re getting into. This market’s going to be cyclical like everything else.”

Gulledge and Flasky say the fear of missing out is often what drives crypto investors to make poor decisions. The fear of missing a golden opportunity can drive people to rush in before they’ve learned enough to understand the risks.

“A lot of people don’t want to put in the time to learn,” Flasky says.

Instead of following that impulse to jump in, he says people should watch the market every day to understand its cycles before investing any money. One good resource is Coinbase, one of the most popular online marketplaces for cryptocurrencies, which provides a trove of information about market trends.

Flasky says another resource, perhaps surprisingly, is YouTube. He cites BitBoy Crypto as a channel that offers a regular, comprehensive rundown of trends within the crypto market. 

Gulledge says another good rule of thumb is to consult someone you already trust to start learning about the market. With so many unscrupulous people involved in crypto, developing trusted information sources is key.

“You need to understand that [the market’s] going to be volatile and you need to understand what your game plan is — before you put money in, not after,” Gulledge says.

Key terms to know

Cryptocurrency: These are digital assets created using encrypted blockchain technology. Bitcoin was the first widely-used digital currency. Ethereum is the second-most popular cryptocurrency.

Blockchain: A type of encrypted database spread out over a worldwide network of computer servers. This distributed ledger system is difficult to hack as transactions are recorded on every server in the blockchain.

Cryptowallet: A crypto or digital wallet uses blockchain technology to give its user a unique digital identity. This digital signature then becomes part of the blockchain and identifies ownership.

Digital asset: This is a type of investment tied to blockchain technology, ranging from one of the more than 20,000 cryptocurrencies to the host of non-fungible tokens.

“Pump your own bags”: Term used in the crypto world to refer to the practice of owners of a given digital asset promoting the value of that asset in order to attract buyers and drive up the value.

FOMO: Fear of Missing Out is the impulse among certain investors to jump into the market for digital assets like crypto before fully understanding the risks.