Investing in cryptocurrency is often falsely considered a shortcut to getting insanely rich. Although it is not impossible, doing so can also make you lose your hard-earned cash. The crypto crash of 2022 is a glaring example of that. Still, the lure of these virtual currencies is boundless. That’s why people often ask is crypto a good investment.
Investing in crypto is not always a good decision. This is because of the huge price fluctuations that can happen at any second. This highly volatile nature makes investing in crypto risky. Learn more about it in the following sections.
How Cryptocurrencies Work?
Cryptocurrencies are virtual or digital assets that can be purchased in coins and tokens in exchange for actual money. You can use these assets to purchase goods and services. Bitcoin, Litecoin, and Ethereum are just some of the examples of the thousands of virtual assets out there.
Cryptocurrencies aren’t regulated by any central government authority. Thus, no government intervention can affect them. They work on blockchain technology, and many of them are decentralized networks. The decentralized networks let people transfer money quickly and cheaply.
Is Cryptocurrency a Good and Safe Investment?
Investing in cryptocurrencies is fraught with risks. Here are some reasons that will convince you that the answer to is crypto a good investment is not always yes.
1. Extremely volatile class of assets
The value of these digital assets swings up one day and then falls back down a few days afterward. So there is no surety of what you will be getting each day. Inflation, fears of recession fears, and more regulation on mining these assets add to its volatility. Moreover, factors like supply and demand, investor and user emotions, and media hype also combine to create price volatility.
2. The constant risk of attacks
Blockchain technology is always under constant threat of attacks. There is a risk of more than 50% attack. It implies a situation when some miners receive over 50% of the crypto network’s mining hash rate control. If they don’t have your best interests in mind, the miners can reverse the transaction that is done or pause it in the process. They can also double-spend coins and stop the validation of new transactions. All this makes investing in crypto not a good decision.
3. Safe storage of cryptos is difficult
Storing cryptocurrencies safely is tougher than said. In fact, doing so is more challenging than keeping stocks or bonds. Although cryptocurrency exchanges let you store your digital assets and exchange them easily, any company can control access to them in these exchanges. Some crypto owners prefer offline cold storage to keep their assets safe, such as hardware wallets. But it also has several risks. For example, if you lose or misplace your private key, accessing your cryptocurrency will become impossible.
4. Cryptocurrency crime rates are increasing.
Unfortunately, there are many scams and crimes related to cryptos that are increasing every passing year. Do you know that hackers stole $400 million of these assets in the early part of 2023? Cryptocurrency criminals promote fake opportunities to invest in these currencies. They create an illusion of getting massive returns by paying off prior investors with new investors’ cash. Bit Club Network is a similar scam operation that raised over $700 million. It was only in December 2019 that the culprits got caught.
5. Pseudonymous form of transaction
Cryptocurrency is an anonymous form of transaction. However, they are also pseudonymous. It implies that they leave a digital trail that the Federal Bureau of Investigation or FBI can decipher. Thus, you cannot negate an intervention from federal or government authorities to track your transactions.
In the U.S., we find that many companies are using crypto as payment. Still, it isn’t legal tender. The Financial Crimes Enforcement Network, SEC or the Securities and Exchange Commission, the Commodities Futures Trading Commission, and the U.S. Treasury Department oversee crypto. SEC has attempted to make the crypto market adhere to the rules that apply to stocks in a bid to save investors from losing their money.
Investing in Cryptocurrencies for the Long Term
Cryptocurrencies as a form of payment medium are not regulated by any central authority. You cannot be backed by any rules for managing disputes while dealing with them. In other words, if you choose to invest in crypto for the long term, you must do so at your own risk.
If you can afford to lose some money and it won’t hurt your budget, you can definitely invest in crypto. We’re not going to be mad at you for that. But if you want to invest in a way that secures you a good life after you retire, spending money on cryptos will not be a great idea. This form of digital asset has no proven record of making investors create solid wealth for their future.
Many of these virtual assets, such as Bitcoin and Ethereum, are launched with towering objectives. Nobody knows whether they can be achieved over a long time. The success of any crypto project is not guaranteed. If a crypto project attains its objectives, the investor gains considerable wealth over the long term. But this is rarely the case.
Bitcoin investors are certain the cryptocurrency will experience value gains over the long term because of the fixed supply. This differs from fiat currencies. The supply of these digital assets is capped at fewer than 21 million coins. Other fiat currencies can be printed whenever the central bankers demand so. It is also worth noting that many believe firmly that Bitcoin will gain value as fiat currencies depreciate.
The Final Verdict on Crypto As an Investment
If you want to explore the world of crypto, which is filled with many unknowns, nobody’s stopping you. Some currencies like Bitcoin and Ethereum are being seen as fairly stable and good for creating sustainable value. Still, you cannot ignore the volatility associated with any digital asset. It is essential to do your research before investing in crypto.
If you believe that your preferred currency’s usage will become widespread over time, then you can experiment and buy it directly as part of your diversified portfolio. But ensure that you have evidence of that currency being adopted in the future. If you have even the slightest doubt, do not consider it safe to invest in crypto.