As cryptocurrencies like Bitcoin began to gain popularity around the world, the price of major digital currencies skyrocketed. Today, they are widely adopted as an investment option .
And with all the expansion of this market, common questions come up: is investing in cryptocurrencies good or not.
To make this point clear, today we will explain how investing in crypto works and present the main advantages and risks of investing in cryptocurrencies.
What is cryptocurrency?
Cryptocurrencies are totally digital currencies that are protected with cryptography. They can be transferred freely between people without needing the control or intermediation of governments and central banks.
Cryptocurrencies were created to facilitate the free transfer of value for greater freedom in peoples’ finances. Thus, they can be used in transactions towards any part of the world, considering the advantages brought forth, mainly transparency, autonomy, and lower fees.
Now that you have an understanding of what cryptocurrency really is, let’s discuss investing in digital currencies. Let’s get into that:
How does cryptocurrency investing work?
Overall, the core idea is the same as stock market investing: buy low, sell high .
In other words, you want to buy a crypto for less and sell it for more. The difference between the two operations will be your profit.
This can be done within a short period, as many traders do. There’s also the possibility of holding a cryptocurrency for years and decades seeking greater appreciation in the long run.
However, this profit is non-predictable since the value of cryptocurrencies will be determined by market supply and demand . This simply means that the price of a crypto fluctuates according to people’s interest in holding or selling it.
That is why you have to be very aware of the market dynamics and know how you use technical analysis tools so that you understand why a crypto asset increases the value or decreases it. So, in this manner, you will stand a good chance in terms of finding an opportunity.
Advantages of investing in cryptocurrencies
Investing in cryptocurrencies can bring great advantages to investors. The main ones are:
High return potential
The price of crypto assets can vary at very high levels, which increases the chances of appreciation and return on this investment.
Especially when we talk about cryptocurrencies that are more consolidated in the market, such as Bitcoin , in the long term these assets can be considered very promising.
Factors such as an economic context favorable to riskier assets, media attention and large companies entering this market are some factors that can boost the price of cryptocurrencies more suddenly.
In the long term, it is mainly the fundamentals of a cryptocurrency , the ability to develop its technology and offer more utility to people that can help in its appreciation.
Low cost
It is exactly because of the respect we have just mentioned that when people realize that at today’s price, 1 Bitcoin is worth approximately one hundred thousand rs, they end up being shocked.
On a positive note, you do not need to buy the whole Bitcoin to invest . The same goes with other cryptocurrencies .
Decentralization and security
As we mentioned above, at the very beginning of this article, cryptocurrencies are decentralized and not controlled by any central body. That would include governments, banks, and many others.
All verification and recording of cryptocurrency transactions, and additionally to that, issues of new currency units, are completed through Blockchain -a type of public and digital ledger.
In that way, cryptocurrencies decrease bureaucracy, while offering security for your funds.
All these coins can be traded and transferred 24/7 without any bank opening hours. Every transfer is automatic, safe, and operated through the Blockchain technology.
You also become your own bank, making your decisions on the best storage and potential transference for your money without always having to depend on a financial institution.
Risks of investing in cryptocurrencies
Investing into cryptocurrencies or trading them is also no exception to risks inherent with any other type of investment. Some of the risks include:
Volatility
Volatility implies the frequency, intensity and speed at which the price of an asset varies in the market. Just as it helps the potential appreciation of crypto assets, it also contributes to making this investment more dangerous than fixed income products, for example.
Cryptocurrencies are very volatile assets. That is to say, the price quotes tend to fluctuate more frequently and at a higher intensity . This characteristic makes the risks higher, both for profit and loss.
By this reason, one of the ways to minimize these effects is by creating a diversified portfolio, thus not investing your assets in just one asset.
Loss of coins
One of the benefits of cryptocurrencies is also the liberty you enjoy in acting as your own bank. This can, however, be very risky if proper caution is not employed.
Crypto market: You have complete control over your own money and your cryptocurrency wallet recovery phrase is the only guarantee that only you have access to your coins . If you lose these phrases you will not be able to recover them.
Similarly, if you tend to mistakenly send your coins to the wrong address, there is no one you can turn to get your coins back.
Hence, research and focus are two critical elements for an individual looking to start investing in cryptocurrencies.
Hacker attacks
Blockchain has ensured a highly secure system. But it still doesn’t mean there are no malicious elements eyeing investors’ money and taking that opportunity.
Recommendations to those who invest in crypto would be not to share wallet data and password details of the brokerage account with anyone. Do not write or save these data pieces on internet-enabled devices.
Do you want to invest in cryptocurrencies?
Cryptocurrencies are really promising secure investments and part of a very rapidly growing market.
But investing in or choosing not to invest in cryptocurrencies is very personal, so only you really know you well enough to know what’s best for you.
It is often very difficult to make the investment in something you know nothing about. Therefore, in the first instance, get knowledge regarding how the market works and what stands behind the interesting cryptocurrencies for you before you decide whether it is a good idea to invest in cryptocurrencies or not.
You also need to consider that cryptocurrencies are more profitable investments with high potential returns, but they are also riskier than fixed income.
Therefore, it is essential to analyze the financial application in crypto according to your investor profile .
This personal reflection will help you identify whether cryptocurrencies are really suitable assets for your personality and goals.