By historical standards, Bitcoin is a wonderful investment. Bitcoin has gained nearly 31,000 percent in the last decade, making it the best-performing asset. If you had invested $1,000 in Bitcoin ten years ago, you would now be worth hundreds of millions of dollars. Can Bitcoin, on the other hand, continue to rise at such a rapid rate? Potentially. Trading volatile cryptocurrencies carries a significantly higher risk than typical investments, but the rewards might be life-changing.
- Is Cryptocurrency Safe?
- Is Cryptocurrency Insured?
- Investing In Crypto
- Where to Invest in Cryptocurrency
- Advantages of Cryptocurrency Investments
- Disadvantages of Cryptocurrency Investments
- Crypto Price Movements
- So, is Cryptocurrency a Good Investment?
Is Cryptocurrency Safe?
Blockchain technology underpins Bitcoin and other cryptocurrencies. A blockchain is a distributed ledger technology that relies on miners to keep track of transactions. Bitcoin’s network is expected to have 10 to 20 times the processing capacity of Google’s servers, making it one of the world’s most secure networks.
Surprisingly, blockchain technology achieves its great level of security by incentivizing tampering to make it unprofitable. To maintain safety and functionality, blockchain relies on probabilistic thinking rather than certainty.
To hack a blockchain, you’d need to control 51 percent of the network’s miners at the same time, making security breaches nearly difficult. However, crypto exchanges are still vulnerable to hacking, and you aren’t totally safe from malicious actors unless you put your crypto in a hardware wallet.
Bitcoin and other cryptocurrencies are risky investments, despite the fact that blockchains are practically impenetrable. In a bear market, Bitcoin can drop by as much as 80% to 90% of its value –– in 2015, Bitcoin lost 84 percent of its value, and in the 2018 bear market, Bitcoin lost roughly 85% of its value. However, as more institutions and long-term investors enter the market, volatility is projected to fall dramatically.
The most secure blockchain is Bitcoin’s, followed by Ethereum’s. After that, things get a little more difficult. Smaller networks are smaller targets, but intrinsically less secure, because security is directly associated with the ability to take over 51 percent of the network. Cryptographic “security” is not a one-size-fits-all solution.
Is Cryptocurrency Insured?
Investing in crypto, like other assets, is not insured. Some crypto-related investments, however, are covered by insurance.
Coincover, for example, provides insurance for cryptocurrency wallets and exchanges. If these businesses use coincover, their customers’ bitcoin is protected against theft and, in some situations, loss of private keys. Your private key is the key that allows you to access your cryptocurrency wallet. Decentralized insurance possibilities based on the blockchain are also available.
Nexus Mutual is a popular decentralized insurance protocol that allows investors to buy into an insurance fund. When investors purchase a share of the fund, they are given Nexus tokens in proportion to their investment. The price of the token is calculated mechanically based on the fund’s total tokens, the minimum reserve requirement, and the number of open insurance contracts. Nexus Mutual can guarantee a company’s exchanges in the event of a security compromise.
Investing In Crypto
Cryptocurrency is viewed as a long-term investment by many cryptocurrency investors. Some investors swear they will never sell their cryptocurrencies because they believe it will eventually supplant gold and fiat money. Cryptocurrencies, on the other hand, have experienced multi-year bear markets, with thousands of investors losing 50% or more of their assets. Regardless, Bitcoin has repeatedly broken all-time high values. The upshot here, however, is that survivor bias inflates bitcoin returns. Investors, for example, prefer to interpret the performance of existing cryptocurrencies like Bitcoin or Ether as a representative and thorough sample, ignoring the hundreds of cryptocurrencies that have gone bankrupt.
Some crypto traders, on the other hand, consider cryptocurrency as a short-term investment. Some traders would even purchase bitcoin tokens with no intrinsic worth because they believe the price will climb regardless.
Cryptocurrency as a Short Term Investment
Traders that invest in cryptocurrencies for the short term are more concerned with the price history of the coin than with its utility. Many short-term cryptocurrency investors, for example, put their money into Dogecoin, which has no competitive edge over larger cryptocurrencies like Bitcoin. These traders buy Dogecoin because of its high volatility, which allows them to make quick profits.
Other short-term traders buy Bitcoin amid price spikes in the hopes of getting in early enough to ride off the frenzy. While some traders may profit from this strategy, most people are better off purchasing cryptocurrencies and storing it for the long term. Long-term investments are, in reality, often more advantageous than short-term investments from a quantitative aspect. Most altcoins have a lower median return than the mean, according to the Wharton School of Business. This means that on most days, you will lose money or gain very little money; but, a few large outliers will more than compensate for these days. As a result, the core goal of an altcoin portfolio is to hold for long enough to see a market ‘outlier move.’
Cryptocurrency as a Long Term Investment
Cryptocurrency is an excellent long-term investment if you believe in blockchain technology. Bitcoin is viewed as a store of wealth, and others believe it will eventually replace gold. Ethereum, the second-largest cryptocurrency by market capitalization, has tremendous long-term growth potential. It is crucial to remember, however, that Bitcoin and Ethereum investments are not direct investments in the underlying blockchain technology. New forms of blockchain technology may come to dominate the market in the future, rendering Bitcoin and Ethereum obsolete.
If Bitcoin is the internet for cryptocurrency, then Ethereum is the internet for computation. Decentralized apps (dapps) on Ethereum allow anyone to use the cryptocurrency for more complex financial activities including loans, insurance, and derivatives. Dapps can also be video games – running a game on Ethereum allows players to buy and sell in-game objects via the blockchain.
Make sure you understand what you’re investing in before making a long-term bitcoin investment. Determine what problem the cryptocurrency is attempting to solve, and then determine whether there is a benefit to incorporating blockchain technology into the solution. Some cryptocurrency companies develop a token to make it easier to obtain funds from unaffiliated investors, although operating on a blockchain provides no competitive advantage.
Where to Invest in Cryptocurrency
There are a variety of places to invest in cryptocurrencies. For beginners, eToro and Gemini are excellent choices. You can finance these exchanges by visiting their websites or downloading their mobile apps. You can buy cryptocurrency with a debit card, a bank transfer, or other cryptocurrencies on both Gemini and eToro.
Robinhood is one of the most convenient ways to buy cryptocurrency, especially if you already have a Robinhood account for stock trading. Robinhood allows investors to buy major cryptocurrencies like Bitcoin and Ethereum, as well as a few select altcoins, but having fewer cryptocurrencies than dedicated crypto exchanges. It’s worth noting that you can’t yet transfer crypto from Robinhood, so if you want to move your digital assets to a hardware wallet or use DeFi, you’ll need to use a dedicated cryptocurrency exchange.
Decentralized Ways to Invest in Crypto
Uniswap is an excellent choice for investors who want to exchange cryptocurrencies using DeFi. Smart contracts –– code on the blockchain –– are used by this DeFi system to provide liquidity among tokens. This liquidity is utilized to allow investors to swap cryptos without the involvement of a third party. You can also allow Uniswap to utilize your tokens for liquidity, in exchange for a substantial interest rate.
Argent is another fantastic option. Argent is an iOS and Android mobile crypto wallet that allows users to invest in several DeFi protocols. On Argent, some DeFi programs offer savings accounts supported by stablecoins with annual interest rates as high as 9%. Stablecoins are tokens that are nearly always equal to $1, making them extremely low-risk investments.
Transaction expenses are a significant disadvantage of investing in bitcoin through DeFi. Because DeFi apps require direct interaction with the blockchain (typically Ethereum), there is a transaction fee that goes to Ethereum miners. This fee varies depending on how busy the network is, but it can range from $3 to $25 or more.
This, however, is about to change. This year, Ethereum’s blockchain will be upgraded to Eth2. Instead of proof of labor, Eth2 will use a proof of stake (PoS) system (PoW). This enables Ethereum to reduce transaction costs to a fraction of what they are currently.
The biggest advantage of investing in cryptocurrencies is the potential for profit. If Bitcoin were to take the place of gold as a store of wealth, each coin would be worth more than $500,000 (market capitalization of gold divided by total number of Bitcoins issued). Bitcoin, according to some investors, should hit $1 million because it will be a better and more accessible store of wealth than gold.
Ethereum has a similar potential for growth. Anyone wishing to conduct a financial transaction using DeFi must first pay Ether tokens. For example, you must pay an Ethereum transaction fee if you want to exchange tokens on Uniswap, buy an NFT, or acquire a loan on the blockchain. Furthermore, as new use cases emerge, investors will lock up their Ether to earn interest through DeFi (and soon Eth2), making Ethereum tokens more rare.
Disadvantages of Cryptocurrency Investments
Risk is the price you pay for a reward. Cryptocurrencies are high-risk investments that can potentially fluctuate by double digits in a single day. Some cryptocurrencies will go bankrupt, rendering their tokens useless. Investing in coins with higher market capitalizations, such as Ethereum and Bitcoin, is often safer than investing in lesser-known coins.
Many cryptocurrencies are uncontrolled since the blockchain sector is still in its infancy. Before you invest, make sure the coin you’re considering has an accredited team and a stable basis.
Crypto Price Movements
Although many notable investors advocate that everyone has some exposure to digital assets, cryptocurrency investment is not for the faint of heart. Because cryptocurrencies are more dangerous and less regulated than traditional investments, you should limit your exposure based on your risk tolerance. Check out our table below for the most up-to-date cryptocurrency pricing.
So, is Cryptocurrency a Good Investment?
Cryptocurrency has shown to be a solid investment in the past. Investing in cryptocurrencies, on the other hand, is intrinsically riskier than investing in stocks, traditional commodities, or real estate. Ethereum has the potential to disrupt the whole financial services industry, while Bitcoin wants to replace gold as a store of value. Cryptocurrencies have a growth potential unlike any other investment, despite their lofty goals.