Monday, August 15, 2022

Why Should I Invest In Cryptocurrency

The Value Depends Largely On Popular Opinion

Why I Invested £5000 in Cryptocurrency | Should You Invest in Crypto 2021 | Is it a Good Investment?

Investing in crypto-assets is highly speculative. The market value can fluctuate a lot over short periods of time, and is affected by things like media hype and investor opinion.

The price of crypto may depend on:

  • its popularity at a given time
  • how easy it is to trade or use it
  • the perceived value of the currency
  • its underlying blockchain technology

How Safe Is Cryptocurrency

Cryptocurrency falls into the “high risk, high reward” category of investments. It’s riskier than investing in stocks because it’s still highly speculative at this point.

Stocks have a long history of growth over time, while cryptocurrency is still relatively new. While it could become mainstream and have real uses in society, nobody knows for certain whether that will happen.

That doesn’t necessarily mean cryptocurrency is a bad investment or that you shouldn’t buy it. If it does find real-life utility, it could potentially change the world — and those who invested early on could make a lot of money. But it’s important to consider your tolerance for risk before you buy.

If you’re a risk-averse investor and are worried about losing money on your investments, cryptocurrency may not be the best fit for you. There’s a chance that it may not succeed over time, and if that happens, you could lose all the money you invest.

Similarly, cryptocurrency is famous for its volatility. Bitcoin has lost roughly 80% of its value in the past, and Ethereum once lost nearly 95% of its value over the span of a year. If you know you’d lose sleep if your investments plummeted, crypto may not be for you.

Bitcoin Price data by YCharts.

On the other hand, if you’re willing to take on a fair amount of risk for the potential to earn lucrative rewards, you may be a strong candidate for this type of investment. But if you do choose to buy, there are a few things to consider first.

Lets Take A Step Back: How Should Crypto Fit Into Your Overall Portfolio

Heres a quick and dirty rundown of what wed invest in before looking at crypto. :

  • Pay off the credit card or any personal debt first. . It is darn hard after taxes to beat the returns that come from paying off debt.
  • Store away 9 months of living expenses of rainy day cash in a savings account somewhere. Work on that. Tragedies happen overnight. Things may be rosy now, but we wouldnt want to be caught flat footed when something unexpected happens.
  • Take advantage of an employers 401k or 403b matching program. An employer matching your contributions to 401k or 403b is the closest thing to free money in this world. Invest those funds in a target date retirement fund like the one Vanguard has.
  • Max out any 401k/403b retirement accounts. Easiest way to do this is to have the employer subtract the right amount every paycheck. Hard to spend what you dont see.
  • Max out IRA/Roth IRA if those provide tax breaks. Ideally, this is done at the beginning of the year, but a recurring investment throughout the year is second best, and a lump sum at the end of the year is third best. Potentially look at a back-door Roth if youre income is too high to qualify for a tax advantaged contribution to an IRA.
  • At Vanguard, choose a target date retirement fund for when you will retire. Put your money in. If youre feeling a bit frisky, put it in a fund slightly later than when you plan to retire for a more aggressive allocation.
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    What More Institutional Adoption Means For Investors

    While paying for things in cryptocurrencies doesnt make sense for most people right now, more retailers accepting payments might change that landscape in the future. Itll likely be much longer before itll be a smart financial decision to spend Bitcoin on goods or services, but further institutional adoption could bring about more use-cases for everyday users, and in turn, have an impact on crypto prices. Nothing is guaranteed, but if you buy cryptocurrency as a long-term store of value, the more real world uses it has, the more likely demand and value will increase.

    The Potential For Bitcoin Investors

    Why should I invest in Cryptocurrency, what is Bitcoin ...

    Bitcoin has delivered mind-boggling returns from its inception. If you consider it an asset or an asset class, it has been the best-performing for many periods over the last 10 years. The following table takes us to the end of November 2020. Bitcoin then went on to add another 50% in December of 2020.

    Despite the jaw-dropping overall gains over time, bitcoin is incredibly explosive and incredibly volatile. To come up a winner, one would have to be prepared for some violent moves to the downside.

    And given the volatility and explosive characteristics, bitcoin historically has made a wonderful portfolio asset. Hows that? There is very little correlation between bitcoin and other major assets. Thats exactly what were looking for when we seek portfolio diversification. We want non-correlated assets that will move in opposite directions.

    Keep in mind though, that because bitcoin is still very volatile and explosive at its core, it will increase the overall volatility of a balanced portfolio. But historically it has boosted returns .

    As CoinShares offers, using a 4% weighting in a balanced portfolio increased returns from 9.3% to 18.8%. The calculation is a 5-year period to the end of October 2020 .

    Recommended Reading: Is The Cryptocurrency Market Crashing

    Cryptocurrency Offer Security And Transparency

    Even though many people still associate cryptocurrency with illegal activities and notorious scams, such as OneCoin, investing in cryptocurrency is a promising venture, with more and more people putting their trust in cryptos instead of fiat currencies.

    As Satoshi Nakamoto – the mysterious figure behind Bitcoin – once said, The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.

    On top of that, many cryptos are based on blockchain technology that is considered almost unhackable. Blockchain transactions are encrypted, signed by a private key and verified by a public key. At the same time, the technology offers high levels of transparency which is another major reason to invest in cryptocurrency.

    Prepare For Volatility And Risk

    I think its pretty well known that cryptocurrency investing and volatility go hand in hand. While the larger coins like Bitcoin and Ethereum have calmed down to some extent, moves of 10% are still not unusual. However smaller tokens can move that much and more day after day, and those moves can come in either direction. That makes it crucial to learn as much as possible about any token and its underlying project before investing.

    In fact, the more you understand, the better investing decisions and choices youll be able to make. For example, some investors approach Bitcoin in much the same way they approach gold. They see it as a store of value, and as a way to hedge against inflation. Thats why Bitcoin has picked up the names digital gold and gold 2.0.

    Ethereum is a different story, with investors attracted to the second largest cryptocurrency based on its utility and use in smart contracts and decentralized finance.

    Cryptocurrencies are considered an alternative asset, a group that also includes real estate and commodities, because they are a way to diversify out of traditional assets like stocks and bonds. While they are great at providing diversification cryptocurrencies also remain quite volatile, and can even be influenced by news items and comments from popular personalities.

    The good news is that despite the volatility, over the long-term Bitcoin has an average annualized return thats greater than 200%. So embracing volatility can lead to impressive gains.

    Also Check: What Crypto Can Be Mined

    Is Bitcoin Bad For The Environment

    The digital currency uses as much power as the Netherlands every year, with just 30 countries using more energy, according to researchers from the University of Cambridge.

    Computers that mine bitcoin use up to 1% of the worlds electricity supply.

    While some of bitcoins consumption is renewable , fossil fuels are still being used to power the mining and servicing of the digital currency.

    This is why electric car manufacturer Tesla has stopped accepting crypto payments, causing bitcoin to fall. Find out more in our Guide to eco-friendly cryptocurrencies.

    You Dont Own A Hardware Wallet

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    I will be straight up: if youve invested more than $500 in cryptocurrencies, then hardware wallets are a smart investment.

    They are disconnected from the internet, which means that hackers can only obtain your funds if they steal your physical device and also know the passphrase to access it. This makes security a much easier task.

    If you have large amounts of money, say over $5,000, then it may be worth buying two. The second can act as a copy to the first one, in case you lose it.

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    Is Cryptocurrency An Asset

    I fairly doubt it. The only reason, I find value in crypto is because of its particular use cases.

    Then, this again leads us to the problem that there will be always a new better crypto. Will we keep switching then?

    I also dont understand how something which is so volatile and prone to manipulation be called an asset. The dogecoin co-creator rightly sums up crypto as a scheme to extract money.

    It is purely a game of money. Even after knowing it, most of you will still place your bet in the next hype due to FOMO .

    But remember:

    You Dont Know Best Security Practices

    Both the wallets and websites you choose to use hold sensitive personal information – do your best to keep it safe!

    If someone compromises your accounts, then you can say goodbye to all of your funds. Take security seriously, and learn from those who have learned the hard way.

    When using a wallet, hardware or desktop, be sure to:

    • Avoid using Public Wifi
    • Avoid using unsecured software/extensions
    • Use strong passwords

    One more important tip: do NOT use your daily email address when you navigate the crypto space. Use a separate one dedicated to your cryptocurrency investments.

    Read Also: Do You Have To File Taxes On Cryptocurrency

    You Dont Prepare For Forks

    Hard forks are similar to airdrops from a crypto investors standpoint – free money! Most investors I know miss out on these opportunities, which can turn out to be quite lucrative.

    Bitcoin Cash is an example of a hard fork of Bitcoin, where all Bitcoin holders received 1 Bitcoin Cash for each Bitcoin in their wallet. Bitcoin Cash trades for well over $100 or $200, so these coins you can get for free, arent cheap.

    Just make sure the wallet you are using support the fork. Simple as that!

    Use CoinsCalendar and search for the category hard forks to stay up to date.

    How Is Bitcoin Mined Exactly

    How To Invest In Cryptocurrency And Why Its Still The Best ...

    Programmers have to locate the new coins and then perform a series of complex mathematical equations in order to unlock the new coins. These miners collectively are also required to confirm ongoing bitcoin transitions verifying the details. As noted above, millions of digital eyeballs are on each transaction. But in the end, only one miner or miner group will be rewarded with the new issue of bitcoins.

    The successful miner walks away with the new coins, and the group of confirmed and verified bitcoin transactions is added to the existing record of transitions. That is how we get to the name and technology known as the blockchain.

    You might think of these miners as paid auditors.

    Read Also: What Is The Value Of Bitcoin

    Investing In Crypto Is Risky Is It Worth It

    It’s possible to get filthy rich by investing in cryptocurrency in 2021. But you could also lose all of your money. How can both be true? Investing in crypto assets is risky but also potentially extremely profitable.

    Cryptocurrency is a good investment if you want to gain direct exposure to the demand for digital currency, while a safer but potentially less lucrative alternative is to buy the stocks of companies with exposure to cryptocurrency.

    Let’s examine the pros and cons of investing in cryptocurrency.

    You Dont Listen To The Market Sentiment

    If the overall sentiment varies, then so may the price.

    While you may expect a bull market soon or be optimistic about a cryptocurrency, other investors may feel the opposite way.

    This is why listening to the sentiment of other investors in the industry is crucial. If you dont, you might miss the next bear/bull market, or the next cryptocurrency about to moon.

    So, how do you listen to the sentiment of your peers?

    • Read other investors thoughts. Not thoughts from influencers or media – from investors, like you and I. You can do this by joining and participating actively in some of the best crypto communities
    • Use tools. These tools scrape information from the web and turn it into actionable metrics, and each of them uses different factors to determine sentiment. Alternative.me, for example, scrapes data from trading volumes, , and social media amongst other indicators.

    Remember that sentiment is just one indicator of the next market movements.

    When crafting your cryptocurrency strategy, cross-reference different indicators from several sources. Always use logic over emotions.

    Recommended Reading: How To Read Charts Crypto

    The Current Status Of Cryptocurrencies In The World

    • It is one of the safest modes of digital payments that can be used for transferring funds in case of remittances and also for peer to peer transactions.
    • It acts as a medium of exchange, a store of value, and as a unit of account.
    • Cryptocurrencies can be used as a hedging instrument against inflation.
    • It is immune to any government regulations, unlike fiat currency where governments and banks can change their supply, modify their exchange rate, and control its value.
    • The user has full control over his funds and need not depend on any intermediaries in the system.
    • It is not only bought regularly by retail investors but many global banks, technology companies, and countries that are investing actively in digital currencies.
    • The crypto economys market cap recently crossed a whopping $1 trillion.

    Hence, as seen above, a digital economy is fast emerging and Cryptocurrencies are witnessing a bullish run of late with positive sentiment from investors. Progressive regulation and different use cases will drive its adoption in the years to come. It is still viewed as a high volatility investment but can potentially generate huge returns in a short time.

    Check out our new platform

    Ways To Invest In Bitcoin

    My Reasons to Invest in Bitcoin and Why I Invest in Cryptocurrency and Getting Into Bitcoin in 2021

    Buying the coins on a cryptocurrency exchange is the most common way of investing in bitcoin.

    But there are other options:

    Buy shares in bitcoin-related companies

    You could invest in cryptocurrency exchanges or even buy shares in companies that are accepting bitcoin as payment.

    Bitcoin ETFS

    You could invest in a bitcoin exchange traded fund ETF. This copies the price of the digital currency, allowing you to buy into the fund without actually trading bitcoin itself.

    Invest in blockchain technology companies

    You could invest in the blockchain network . For example, tech platform Solana claims to be the fastest blockchain in the world.

    Bitcoin funds

    Several investment companies are launching bitcoin funds.

    It will still be volatile, but it could be easier to sell your investment and get your money back than investing directly.

    There are also funds that have some exposure to bitcoin as well as traditional assets like and bonds.

    Bitcoin options

    These are a form of financial derivative that gives you the right to buy or sell bitcoin at a set price before a certain date of expiry.

    Unlike buying Bitcoin cryptocurrency outright, bitcoin options enable you to take a speculative position on the future direction of a market price.

    You would buy a call option if you believe the market price would increase:

    Read about Lewis, who taught himself about cryptocurrency and made £8,500 in less than a year after setting up an account with trading platform eToro.

    Read Also: How To Swing Trade Crypto

    How To Invest In Bitcoin And Make Money

    Like any investment, making money depends on what price you buy and sell an asset for. If you sell when its price is higher than you bought it for, you will make money.

    If you sell for a lower price than you bought it for, you will lose money.

    For example:

    • If you had invested in bitcoin at the start of 2020 and sold on 31 December 2020, you would have made a 300% profit
    • If you had invested in bitcoin at the start of 2018 and sold on 31 December 2018, you would have made a 73% loss

    Bitcoin is extremely volatile so the trick is not to panic and crystallise your losses by selling when its value inevitably falls. This is the same with all investments.

    Bonus: You Only Invest In Cryptocurrencies

    This last mistake comes as a surprise, but why invest only in cryptocurrencies? Its wise to diversify your portfolio not only amongst cryptocurrencies, but stocks, bonds, and other assets as well so you should check the 50/25/25 rule.

    The stock market is indeed a safer bet than crypto, so if you want to be conservative, put say 15% of your investment funds into crypto. If you hold safe stocks and bonds with the remaining money, then you should be pretty safe.

    Disclaimer: we do not know your financial situation, nor are we financial advisors.

    The world is your oyster, so dont be afraid to invest in different markets and niches.

    Well, you made it to the end, congratulations we hope that you learned something about a crypto investment strategy that can suit you!

    Although there are plenty of mistakes to avoid, most of them are common sense and require no memorization. Simply being aware of them should be enough to make you think of and improve your cryptocurrency investment strategy.

    Which mistake from the list prevents you from making more profits? Which one do you make again and again? Do you make mistakes that arent listed? Let me know in the comments!

    Lastly, here are more resources you might like:

    Read Also: How To Develop With Blockchain

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