Since the cryptocurrency era began a few years ago, the number of investors continues to grow by the day. Investors in these financial assets are driven by various objectives. However, there are critical factors to consider when buying cryptocurrency in Kenya.
Although cryptocurrencies have been very rewarding to some investors, there is also a big number of people and institutions that have lost their investment in the process. Hence, it is critical to evaluate these factors deeply to ensure you understand the market and the assets.
What are cryptocurrencies?
This is a form of digital currency that runs on a technology known as the blockchain. Cryptocurrencies mimic the real money we use today. Over time, they have gained various uses such as facilitating transactions and as a store of value.
However, the major use is that of investment assets. Investors buy and sell them intending to make a profit.
Some of the major cryptocurrencies in the market include Bitcoin, Ethereum, and Tether. Learn more on How to Buy Bitcoin in Kenya using M-PESA.
Currently, there are thousands of cryptocurrencies in circulation giving you a big range of choices to invest in.
Benefits of investing in cryptocurrencies
Readily accessible- Due to the rise in the number of brokers in the country, it has become easy to invest in cryptocurrencies. You only need to register an account with a broker and start investing.
High returns- Because these are new financial assets, there are immense opportunities to make big returns, especially for those who understand the market. As an example, some of these coins can rise to 10 times within a single year representing a 1000% profit.
Little regulation-Currently, these assets are not regulated in the country. Hence, there are no limitations. There are also no taxes on the income made from investing in such assets unlike the peers such as shares.
Factors to consider when buying cryptocurrency in Kenya
There are various critical factors you need to consider before investing in these assets to ensure you do it profitably. These include:
1. Market knowledge
Most financial advisors will tell you that you should only invest in the assets that you understand. Hence, it is critical to take time in learning cryptocurrencies before buying. The learning should include understanding how they exist both on fundamental and technical levels.
Only through understanding these elements you can increase the probability to predict future price movement. An element that is critical if you want to become a profitable investor. It will also help you to figure out those coins with a future and those that are existing Ponzi schemes.
Other information you need to target as part of market knowledge is research on the brokers and the costs associated with buying them. These come in form of trading fees and registration fees.
In case you are unable to get all the necessary information to enable you to make a sound investment decision, consider engaging a professional for guidance. However, this might come at a fee.
As an investment undertaking, capital must be among the factors to consider. This is because it is what guides what coin to buy and in what quantity.
Cryptocurrencies have different market valuations. Hence, capital is a key element when making a buying decision. The amount of cryptocurrency you buy will also be key in determining either the amount of losses or returns to make.
As an example, the major coins such as Bitcoin and Ethereum are currently trading at 2.5 million and 200,000 shillings respectively per coin. However, we have smaller cryptocurrencies such as Shiba inu and Dogecoin that are trading below 10 shillings per coin.
Based on this information, you should evaluate what your capital can afford. The key advantage is due to the digital nature of these currencies, you can buy any value as long as you are within your broker limits. As an example, although bitcoin is trading that high, you can get a fraction of it even with 10,000 shillings.
There are various sources of capital in this type of business such as savings and leverage. Leverage is the amount a broker allows you to borrow from them and use to invest in these assets. It is more of a loan from the broker and comes at a cost to sustain it.
A broker is an intermediary that facilitates buying and selling of cryptocurrency. To buy cryptocurrency, you should open an account with a broker. The process involves providing your basic details such as your Identity card, email address, and latest photo.
However, the requirements may differ depending on the broker. Hence this makes it among the factors to consider when buying cryptocurrency in Kenya.
There are various brokers that you can use to buy cryptocurrencies such as Binance and Coinbase. These are among the largest brokers globally with most Kenyans using them.
Some of the factors to consider when settling on a broker include;
- Cost of trading
- Payment options
- Account opening process
- Funds and Coins safety
A good broker should have a low cost of trading. This helps to maximize your income. On the payment options, the right broker should offer a convenient variety of payment options that make both deposits and withdrawal processes faster and more convenient. As a Kenyan, perhaps one of the best options should include M-pesa.
The account opening process should also be straightforward and fast. The safety of your investment should be a priority. Hence, ensure to settle on a broker that offers this not only for the funds but also for personal data No one wants to invest in an unstable broker with a high chance of vanishing with the investor’s funds.
Finally, only invest with brokers that are regulated to ensure they are operating within Kenyan laws. This ensures there are safeguards in place to protect your investments. In case of losses, you are as well eligible to seek legal remedies as per the law.
4. Risk level
Cryptocurrency is among the riskiest investment assets in the market today. Hence, it operates based on high rewards and high risks. Normally, you should have a risk management strategy when buying cryptocurrency.
This helps to ensure even during losses, the risk is manageable. Some of the risk management strategies include diversifying and only investing capital you are willing to lose.
In diversifying, you should spread your investment across various cryptocurrencies with different characteristics. As an example, don’t put all your money in Bitcoin alone. Buy other cryptocurrencies as well. This ensures that if one currency is having market difficulties, the rest will help you remain afloat.
The best way to understand risk management is through continuous research and experience. The more you do it, the better you become in the market. To minimize losses, target to understand key market points such as reversal areas.
This will assist you to avoid buying cryptocurrency when the market is falling and vice versa. Finally, you should control the use of leverage as much as possible to avoid increasing your losses. Although leverage is good when the market is going your way, it is as well catastrophic when it goes against you.
Regulation is an important aspect when it comes to investment. Currently, the cryptocurrency market has few or not regulations in place. This makes it a risky market that needs care and due diligence before committing your funds.
The explanation for this is these assets are relatively new and hence most governments are still in the process of understanding the assets and market before they can develop relevant regulations.
The lack of regulations makes it harder for you to seek legal help when things don’t go as per plan. However, there are also some benefits in such circumstances as lack of formal taxes ensuring you keep all the income.
It is very important to consider these factors when buying cryptocurrency in Kenya. They are key in increasing your probability of being a successful investor.
There are various ways to get this information. Some of these include engaging successful investors who have been in the market longer. You can also research from information available online in sites such as Google.