I will be the first to admit that I enjoy seeking out interesting and unusual investments, and then getting involved in them.

That often applies to some of the tribal tokens I find here on our own Hive-Engine!

However, there's a certain — pretty common — scenario that a lot of us tend to conveniently forget or overlook.

We find a project we like, spend some time stacking tokens and after a while we have accumulated a nice little pile... so one day we check in and determine that our "nice little pile" has actual value! Groovy! According to the most recent trades, we perhaps determine that it's worth $1000.

Whoa! Just a Moment!

But that's not always true!

So often we will discover that our tokens may be worth $1000 on paper, but if we were to actually try to trade that "$1000 worth" of tokens we'd have no luck at all, due to a total lack of liquidity.

Sadly, we may learn the "hard way" that holding $1000 worth of a token that only has a daily trading volume of $50 doesn't really amount to much of anything. Or, at least, it doesn't amount to much of anything if we need that $1000 right now.

Typically, we're left with a couple of options... unless we think the better of it, and just hang on to our tokens.

Either we can very slowly bleed off our tokens piecemeal over a period of several weeks or possibly months to get our $1000 — or something that approximates our $1000 — out of the game.

Or we can put our $1000 worth of tokens up for sale at the current bid prices and discover much to our horror that $1000 "on paper" is actually only worth $42 in terms of what the trading market will bear. Ouch!

Value Can be Highly Relative — So What's Your Plan?

Therein lies one of the "camouflaged" risks of getting involved in esoteric and thinly traded securities end cryptocurrencies.

As an aside to which, a lot of these projects actually live and die on the idea that people get fired up and excited about investing in them initially and pleasantly overlook the fact that they might actually want to sell their investment at one point or another.

These days, I'm a lot more careful about what I get behind.

It's one thing if you think you're going to be able to commit absolutely to something for several years, but if you can't actually make that promise it's important to (A) check the liquidity of the token and (B) have a look at the typical spread between the buy and sell price because sometimes you might be able to buy a $2.00 token but the only way to get back out of that token is to accept a current high bid of about $0.80.

Which basically means you're inviting yourself to at least the potential to take a financial bath there, even without the token price moving!

Curator Cat says: By all means be enthusiastic, but be SMART!

I'm sure this seems like "Investing 101" to a lot of people here, but it's surprising how many get caught in these liquidity traps because we get all wound up in our enthusiasm about getting involved in something new and promising at the ground level, while forgetting that once the initial hype dies down there may not be a whole hell of a lot of market for what we got involved in.

So I always make sure that a part of my investing strategy remembers to examine the potential "exit strategy" from what I am buying into!

Of course none of this is actually investment advice just an invitation to always do your homework before you get involved in something!

Thanks for stopping by and have a great remainder of your week!

=^..^=

CuratorCat 24-JAN-2022

Posted Using LeoFinance ^Beta