Is Cryptocurrency A Good Investment?
The buzz around cryptocurrencies in the last few years may be getting to you when you start to consider crypto investment. If you’re reading this article, it is probably because you want to be sure if it’s the right step to take or not. To answer this question in one sentence, cryptocurrency is a good investment. In reality, though, it’s not that straightforward.
You may have heard about the success stories of many people and how they have made millions of dollars through investing and trading in cryptocurrencies. Perhaps, you have a couple of friends who are into crypto mining, and you can’t wait to be a part of this movement.
The truth is, everyone goes into cryptocurrency with the view of making money. However, like every other market, not everyone will make a profit. Some people will make losses instead. This is probably because they don’t understand how it works, and they failed to ask the right questions. As a crypto beginner, this is a legitimate fear that you must have: the possibility of losing your money. Let this drive you towards researching, learning, and asking the right questions from the right quarters.
So, cryptocurrency can make you filthy rich, or it can make you lose all your money. Both can be true. It is a market with lots of profit potentials and a lot of risks as well.
- 1 Some cryptocurrency investment risks
- 2 Questions you must ask before investing in cryptocurrency.
- 3 Other things that you must know before you invest in cryptocurrency
- 4 Are cryptocurrencies ideal for long-term investment?
- 5 Bitcoin and Ethereum as a long-term cryptocurrency investment
Some cryptocurrency investment risks
It’s rare but possible that cryptocurrency exchanges are targeted by cybercriminals for their criminal activities and may become hacked. If there’s a security breach, investors who have their digital currencies on these platforms will lose them to the criminals, which will amount to a huge loss for both the exchange and its customers.
Although buying and selling crypto assets is easy with crypto exchanges, the risk of losing the asset to hackers if the exchange is breached is one of the reasons many people don’t keep their coins on exchanges. Some people prefer to use cold storage – offline options – such as paper wallets or hardware, but this type of storage also has its challenges. It is possible to lose your private key, and your digital assets become locked away forever.
Another risk is the lack of a success guarantee for any crypto project. There are thousands of crypto coins and projects, so the competition for relevance is fierce. Unfortunately, in the end, only a tiny percentage of these projects succeed.
Regulator crackdown is another bane of the cryptocurrency industry since it is yet to gain widespread mass adoption. This will only worsen once the government starts to view cryptocurrency as a threat instead of the innovative technology it is.
Cryptocurrencies are also built on cutting-edge technologies, making them riskier for investors because the technology is still being built and hasn’t been proven extensively in real-life scenarios.
Questions you must ask before investing in cryptocurrency.
Cryptocurrencies are very volatile, and this constitutes a risk itself. However, if you’re willing to take this risk, ensure an excellent cryptocurrency investment strategy and be sure of what you’re investing in. you must also ensure you’re not investing because others are doing it or because you don’t want to miss out on the trend. There are several questions that you must ask yourself and be able to answer before you go ahead:
- Do you understand cryptocurrency and how cryptocurrency investment works?
- Are you happy and willing to take the risk?
- What’s the price of bitcoin now compared to three or six months ago? Are you willing to buy it because the price is increasing? Is this something you do in other areas of your life?
- Are there evidences to prove that the price will only increase?
- Why were you not interested in it early enough when the price was lower?
- Are you convinced that you know what you’re doing?
If you can’t comfortably answer these questions, then you’re not ready to invest in cryptocurrency and shouldn’t go ahead with it.
Other things that you must know before you invest in cryptocurrency
Bitcoin is one of the cryptocurrencies you can invest in with high potential rewards, but others can also return high rewards like ethereum. However, like every other investment, they have their risks. Before you forge ahead, these are some of the things that you must keep in mind.
- Don’t invest your life savings in crypto.
- See it as gambling and invest only the amount you can comfortably dispose of from your income.
- Don’t invest more money than the loss you can handle.
- If you’re not a high earner, it’s best to save what’s left of your money instead of investing in cryptocurrency.
You must also pay attention to the pros and cons of cryptocurrencies, like this one:
Pros: these digital currencies are global, so they don’t have exchange rates as their value is the same in all countries.
Cons: it’s a risky investment due to the highly volatile nature of cryptocurrencies. There are also instances where technical issues mean people have to wait before cashing out.
Are cryptocurrencies ideal for long-term investment?
Many cryptocurrencies like ethereum and bitcoin have lofty objectives during the launch that can only be achieved over a long period. Although there’s no guarantee of success for any crypto project, if the set goal for a project is achieved, the early investors will be rewarded hugely over the long term.
However, before you consider a crypto project successful over the long-term, it must achieve widespread adoption.
Bitcoin and Ethereum as a long-term cryptocurrency investment
Bitcoin is the leading cryptocurrency and benefits from what’s called the network effect – most people own bitcoin, so more people want to own it. Many crypto investors view this coin as “digital gold,” It can also be used as cash in digital form.
Bitcoin investors believe this coin will gain more value with time because of its fixed supply, unlike the fiat currencies like the US dollar. In addition, unlike fiat currencies controlled by central banks, Bitcoin has a supply cap of 21 million coins and can be printed at a politician’s will. As a result, many people expect this coin to appreciate value while fiat currencies depreciate.
Some people are bullish about the extensive use of bitcoin as digital cash because they believe it has the long-term potential to be the first global currency.
Ethereum is a platform, and Ether is its native coin, and investors that want to have portfolio exposure to Ethereum can buy this coin. While people see bitcoin as the digital gold, the Ethereum platform creates a global computing platform to support a huge ecosystem of decentralized apps and many cryptocurrencies.
The open-source nature of decentralized apps and the number of digital currencies built on this platform allow Ethereum to benefit from the network effect and create a sustainable value for the long term.
This network helps users execute smart contracts and collects Ether in exchange. With smart contract technology, there’s the potential to massively disrupt industries like banking and real estate and create new markets entirely.
With more people using the Ethereum platform worldwide, the value and utility of Ether are also increasing. So investors who are confident about this platform’s long-term potentials can invest in Ether and may be able to profit from it.
Cryptocurrency investment is good, but as this article points out, it’s not as straightforward as that. There are risks and many other things to consider before you decide to go ahead with it.