Is crypto a good way to invest? / Should You Invest In Crypto?

Is crypto a good way to invest Should You Invest In Crypto
Is crypto a good way to invest Should You Invest In Crypto

The world has been swept up by cryptocurrency. Since the first cryptocurrency, Bitcoin, was introduced in 2009, the cryptosphere has experienced both incredible highs and devastating lows.

The fact is that cryptocurrencies are incredibly erratic investments. Investors need to be aware that owning cryptocurrencies entails a significant increase in portfolio risk. But cryptocurrency could offer fantastic chances for investors who know how to minimize risk.

Is It Safe to Invest in Cryptocurrencies?

While some investors have made enormous profits thanks to cryptocurrency, others have suffered huge losses.

New investors should avoid crypto, according to William Procasky, CFA, assistant professor of finance at Texas A&M University-Kingsville. He does, however, add that more seasoned investors who are accustomed to managing risk might find a place for it in their portfolios.

“If you’re building a broad-based portfolio and want to add cryptocurrency to the 5% or 10% of your portfolio you’re setting aside for alternative assets, then you might be okay,” says Procasky.

By market capitalization, Bitcoin and Ethereum are the two biggest cryptocurrencies and are more well-established than many other crypto choices. For the majority of investors, this makes them a safer wager.

According to Lauren Niestradt, CFP/CFA, senior portfolio manager at Truepoint Wealth Counsel, “There’s a little more safety around them if you go for options like Bitcoin and Ethereum, which are more mainstream.”

What the SEC Says About Crypto

The SEC has expressed doubt about cryptocurrencies. SEC chair Gary Gensler stated that cryptocurrency companies must “come into compliance” with current rules in an interview with Yahoo Finance.

These comments were made soon after the FTX fiasco towards the end of 2022.

Gensler hopes that, among other things, if cryptocurrency holding businesses decide to turn into lending organizations, the SEC will provide consumer protection.

“Just because new technology is employed doesn’t mean the crypto market should be treated any differently. In a speech delivered in April 2022, Gensler advocated for us to be technology-neutral.

This means that existing restrictions as well as new laws and regulations, which Congress is now reviewing, may have an impact on how crypto exchanges and other businesses conduct their operations.

Risks Associated with Cryptocurrency Investment

The hazards of investing in cryptocurrencies include capital loss, governmental restrictions, fraud, and hacking.

Loss of capital: Mark Hastings, a lawyer at Quillon Law, cautions investors to exercise caution in the distinct financial environment of cryptocurrencies or run the danger of suffering large losses. This is a risk with any investment, but the high volatility of cryptocurrencies makes it a far greater danger.Since Bitcoin has lost more than 60% of its value over the last year, these losses might potentially equal a sizeable portion of the initial investment.

Government regulations: Many nations have not yet fully regulated the usage and sale of cryptocurrencies, says Michael Collins, CFA, professor of financial planning at Endicott College, which can make it challenging to know what to expect in terms of legal and financial hazards. Some others are even advocating for the ban of cryptocurrencies in the US. Even though this is undoubtedly an unusual scenario, it is possible because it has already occurred in China.

Fraud: In the cryptosphere, fraud is widespread, as it is in any unregulated sector. According to Hastings, “cryptocurrency fraud soared in 2022, and the lack of regulatory oversight of the industry left many thousands of investors out of pocket.”

Hacks: With crypto, hacks are pretty common. Cryptocurrency worth more than $3.2 billion was stolen in 2021, according to Chainalysis. Even while many exchanges provide private insurance, you might not have any other options if you lose your cryptocurrency as a result of a breach.

Cryptocurrency Adoption

At the time of writing, the cost of one bitcoin is about $17,000. Its maximum of more than $65,000 in November 2021 is far below this.

However, Bitcoin was initially praised as an electronic form of money rather than as a long-term investment. Cryptocurrencies like Bitcoin would need to be usable for making purchases in order for this to function as intended.

Despite the fact that there are more than 22,000 cryptocurrencies in use today, only a small number of them are commonly used to make purchases of products and services.

It was anticipated that 2,300 U.S. companies accepted bitcoin payments by the end of 2020. The number of businesses taking cryptocurrencies in the United States in 2019 was a drop in the ocean given that there were more than 35 million of them.

Cryptocurrencies: A New World Currency in the Making?

Many supporters of cryptocurrency have praised the possibility of it becoming a universal currency in light of the recent excitement around it.

Governments won’t likely permit a rival currency of such magnitude, claims Procasky. “There is nothing that can compete with the U.S. dollar,” said one expert of a global currency that must be “very liquid and very deep.”

Money is a controlled and subject to strict regulation asset. The 2022 incidents involving Terra Luna, Celsius, and FTX showed that, in its current form, cryptocurrency can seriously harm people’s finances. Most governments across the globe would not permit that level of risk to exist in their banking systems.

Niestradt says, “I think it’s years away, and this is where part of the speculation resides. It’s not guaranteed.

Is Crypto a Good Long-Term Investment?

To have long-term value, cryptocurrencies need to be widely adopted, but this is extremely difficult.

“While I think that the underlying technology of blockchain has innovation and practicality, until it is decoupled from the gamble of currency without regulation, it’s too risky,” says Andrew Rosen, CFP, president of Diversified LLC.

More daring investors might choose to take a chance on it, though.

These investors might or might not get a quick return, but that doesn’t mean the ideal cryptocurrency couldn’t provide enormous profits for them in the long run. Of again, an investor’s cryptocurrency holdings could equally well lose all of their value.

Should You Invest in Crypto?

Only you can make the ultimate decision regarding whether you should make an investment in cryptocurrencies.

Whatever choice you select in that regard, it’s important to complete your research, comprehend the investing thesis of each specific coin, and perhaps even consult a financial expert.

You might speculate on other assets that are available. It doesn’t have to be cryptocurrency, but if you think blockchain technology will play a role in the future, there is a thesis for it, according to Procasky.

Disclaimer: Cryptocurrencies are complex, risky, and speculative; they are also quite volatile and susceptible to secondary activity. Performance is unpredictable, and past success does not ensure future success. Before depending on this information, take into account your own circumstances and seek your own counsel. Before making any decisions, you should also confirm the specifics of any product or service (including its legal status and any regulatory requirements) and examine the websites of the appropriate regulators. There may be holdings in the cryptocurrencies mentioned by Finder or the author. The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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