Since it’s risky to invest in crypto, can it be worth it?
Even if it can be possible for you to become filthy rich if you invest in cryptocurrency, there is still an excellent chance that you will lose all of the money that you invested. How can this be true? Even if it can be perilous to invest in cryptocurrency, it still can become highly profitable. It can be great to invest in cryptocurrency if you want to become directly exposed to digital currency. Even if it can be potentially less lucrative, you may also choose to purchase stocks of companies exposed to cryptocurrency.
Let us go on and review the advantages and disadvantages of cryptocurrency investment.
Is it safe to invest in cryptocurrency?
As of the moment, there may be several factors that can make cryptocurrency not wholly safe. Other signs are emerging to tell that cryptocurrency is here to remain available for people.
The risks of cryptocurrency investment
Cryptocurrency exchanges are more vulnerable to getting hacked and becoming targets of criminal activity compared to stock exchanges. Because of security breaches, a lot of investors experience sizable losses whenever their digital currencies get stolen.
Aside from that, it can be more difficult to store cryptocurrencies compared to owning bonds and stocks safely. Cryptocurrency exchanges like Binance and Coinbase allow people to buy and sell assets in crypto like Ethereum and Bitcoin. However, because of the risks mentioned above of theft and cyber-attack, many people don’t want to have their digital assets kept on exchanges.
Some challenging people who own cryptocurrency prefer getting offline options in “cold storage” like paper wallets and hardware. However, cold storage still has specific challenges. The most significant risk is losing your private key. Without it, you may not be able to have access to your cryptocurrency.
Furthermore, there are no guarantees that the crypto project you plan to invest in will succeed. There is fierce competition among so many blockchain projects, and in the crypto industry, scams are pretty prevalent. Ultimately, just a few cryptocurrency projects would become successful.
Aside from that, it can be possible for regulators to crack down on the whole crypto industry, especially once governments start to strongly consider cryptocurrencies as something that can threaten their country instead of great technological innovation.
Since cryptocurrencies have a basis on cutting-edge technology, they can increase the risks for investors. Many of the involved technology is still undergoing development, so it may not have ample proof in the real world.
The Adoption of Cryptocurrency
Even if there are inherent risks, the blockchain industry has consistently grown stronger. The industry has built the required financial infrastructure that enables investors to increase their access to institutional-grade custody services. Individual and professional investors are slowly getting the needed tools in safeguarding and managing their assets in crypto.
As the futures markets of crypto are undergoing establishment, many companies are starting to gain exposure to the sector of cryptocurrency directly. Financial giants like PayPal and Square allow people to purchase and sell cryptocurrency on their well-known platforms quickly. Other companies, such as Square, collectively invested hundreds of millions of dollars in various digital assets like Bitcoin. Early this 2021, Tesla bought $1.5 billion Bitcoin.
Even if other factors can impact cryptocurrency’s risks, the increased pace of adoption shows that the industry is maturing. Both companies and individual investors have sought to gain exposure to cryptocurrency directly, as they consider it safe to invest large sums of cash.
Is it reasonable to invest in crypto for the long term?
Many cryptocurrencies like Ethereum and Bitcoin were able to launch lofty objectives that they can achieve over extended time horizons. Even though the system may not guarantee any cryptocurrency project to become successful, once it reaches its goals, those who invested early will become richly rewarded in the long term.
Yet, for any cryptocurrency project, it is necessary to achieve widespread adoption to become considered a success in the long term.
Long-term investment in Bitcoin
Among the most well-known cryptocurrencies is Bitcoin. The network effect has been beneficial to it as more and more people now want to become owners of Bitcoin as a lot of investors view it as “digital gold’ that they can also use as digital cash.
Those who invested in Bitcoin have believed that the cryptocurrency will increase in value in the long term as it has a fixed supply, unlike fiat currencies like the Japanese Yen or U.S. Dollar. Bitcoin has a supply that is capped at less than 21 million coins. Currencies controlled by the central bank get printed according to the politicians’ will. A lot of investors are expecting Bitcoin to increase in value when fiat currencies depreciate. People who are bullish on Bitcoin as it is used extensively as digital cash believe that, in the long term, Bitcoin can potentially become the first truly global currency.
Long-Term Investment in Ethereum
Investors who want to gain exposure to Ethereum in their portfolio can buy the Ethereum platform’s native coin, known as Ether. As people consider Bitcoin as digital gold, Ethereum works on creating a global computing platform that is capable of supporting the extensive ecosystem of dApps or decentralized applications and so many other cryptocurrencies.
So many cryptocurrencies are built on the platform of Ethereum. In combination with the app’s open-source nature, it can allow Ethereum to have so many opportunities that can let it benefit from the effect of the network and eventually create long-term, sustainable value.
The Ethereum platform allows the use of “smart contracts” that can automatically execute according to the terms directly written into the contracts’ code.
The network Ethereum works on collecting Ether from its users in exchange for the execution of smart contracts. It can be potentially significant for innovative contract technology to disrupt any massive industry like banking and real estate. Aside from that, it can also create entirely new markets.
Since the Ethereum platform has become used increasingly worldwide, the Ether token has increased in value and utility. Investors bullish on the Ethereum platform’s long-term potential can directly earn profits if they own Ether.
Is it reasonable to invest in cryptocurrency?
If you own some cryptocurrency, you can increase the diversification of your portfolio, as cryptocurrencies like Bitcoin have historically shown that there is almost no price correlation with the American stock market. If you believe that the use of cryptocurrency will eventually become increasingly widespread, it will make sense to buy crypto as a part of your diversified portfolio directly. When you invest in cryptocurrency, make sure to include an investment thesis on why you think that currency will be able to withstand the test of time.
If it’s too risky for you to buy a cryptocurrency, consider the other ways you can potentially profit from the cryptocurrencies’ rise. You may purchase businesses like PayPal, Square, Coinbase or invest in various exchanges like the CME Group that facilitates futures trading in crypto. Even if investing in these businesses may appear to be profitable, they don’t have the same advantageous potential as direct cryptocurrency investment.
