Cryptocurrencies allow you to profitably acquire and sell goods and services. One of the most common concerns surrounding the conversation about cryptocurrency is whether or not they are good investments.
Cryptocurrencies are known for being extremely volatile when it comes to their intrinsic value, and so the idea of purchasing and investing in cryptocurrencies can be daunting at first.
Value volatility refers to how drastic changes in an asset’s value might be, with cryptocurrencies having very rapidly changing values.
When looking at cryptocurrency as an investment opportunity, it is important to look towards the future, if you wish to understand the potential gains for your investment.
What Is A Cryptocurrency?
A cryptocurrency (or “crypto”) is a type of digital currency that can be used to buy goods and services but is protected by an online ledger and strong encryption.
The bulk of interest in these unregulated currencies is for profit trading, with speculators occasionally propelling prices skyward.
Cryptocurrency is an electronic payment system that may be used to purchase and sell goods and services. Many firms have devised their own currencies, dubbed tokens, that can be traded for the goods or services they provide.
They’re similar to arcade tokens or casino chips. You’ll need to exchange real money for cryptocurrency in order to utilize the item or service.
The technology that allows cryptocurrencies to work is known as the blockchain. Blockchain is a distributed ledger that records and manages transactions across several computers. Part of the appeal of this technology is its security.
Over 13,000 different cryptocurrencies are freely traded, according to CoinMarketCap.com, a market research website. Initial coin offerings, or ICOs, are being used to attract funding for cryptocurrencies, which are growing in popularity.
The total value of all cryptocurrencies was more than $2.5 trillion on Oct. 22, 2021, down from an all-time high of $2.6 trillion two days before. Bitcoins, the most extensively used digital currency, were projected to be worth $1.2 trillion on the open market.
Why Are People Interested In Cryptocurrencies?
Cryptocurrencies like bitcoin are seen as the money of the future, and supporters are hurrying to get their hands on them before they become more valuable.
Because central banks tend to devalue money over time through inflation, some supporters like the concept that bitcoin frees them from regulating the money supply.
Others argue that the blockchain technology that enables cryptocurrencies is preferable to traditional payment systems because it is a decentralized processing and recording system that is potentially more secure.
Some investors are interested in cryptocurrencies because their value is rising, but they are unconcerned about the currencies’ long-term use as a means of payment.
Cryptocurrencies may rise in value, but many investors consider them to be speculative rather than long-term investments. What is the rationale behind this?
Because cryptocurrencies, like real currencies, have no cash flow, someone else must pay more for the currency than you paid in order for you to gain.
The “greater fool” investment theory is what it’s called. A well-managed company, on the other hand, increases its value over time by boosting profitability and cash flow.
How Do I Buy Cryptocurrency?
While certain cryptocurrencies, such as bitcoin, may be purchased using US dollars, others require payment in bitcoins or another cryptocurrency.
You’ll need a “wallet,” which is an online program that holds your cash, to buy cryptocurrencies.
In general, you establish an account with a cryptocurrency exchange and then purchase cryptocurrencies such as bitcoin or Ethereum using real money. Here’s where you can learn more about how to invest in bitcoin.
Coinbase is a well-known cryptocurrency exchange where you can create an account, buy and trade bitcoin and other cryptocurrencies, and set up a wallet.
A growing number of online brokers, including eToro, Tradestation, and Sofi Active Investing, are offering cryptocurrency trading. Robinhood Crypto is a free bitcoin trading app that is available in most, but not all, U.S. states.
Cryptocurrency is a high-risk, high-reward investment. Investing in the stocks of well-known companies is frequently safer than investing in cryptocurrencies such as bitcoin.
How Do Cryptocurrency Wallets Work?
Crypto wallets protect your private keys – the passwords that provide you access to your cryptocurrencies – while allowing you to send and receive cryptocurrencies like Bitcoin and Ethereum.
They range from hardware wallets like the Ledger (which looks like a USB stick) to smartphone apps like Coinbase Wallet, which makes using bitcoin as straightforward as buying anything online with a credit card.
Crypto wallets, unlike traditional wallets that may store actual cash, do not store your bitcoin. Your assets are kept on the blockchain, but only you have access to them since you have a private key.
Your keys prove that you control your digital currency and allow you to use it to make transactions.
If you lose your private keys, you lose access to your money. That’s why it’s so important to keep your hardware wallet safe or use a trustworthy wallet provider like Coinbase.
Crypto wallets range from simple applications to more complex security solutions. Wallets are available in a number of designs, including:
- Paper Wallets: Keys are written on a physical medium like paper and kept in a safe place. This makes it more difficult to use your crypto, which can only be spent on the internet because it is digital money.
- Hardware Wallets: Cryptocurrency keys are maintained on a thumb drive that is kept in a secure area and is only connected to a computer when you need to use it. The objective is to establish a balance between security and practicality.
- Online Wallets: The keys are kept in an app or other piece of software; search for one that supports two-factor authentication. As a result, sending, receiving, and utilizing bitcoin is as simple as logging into an online bank account, using a payment system, or using a brokerage.
Are Cryptocurrencies A Good Investment?
Some well-known financial figures have cautioned potential investors to stay away from them. “It’s a really effective method of moving money and you can do it anonymously and all that,” Warren Buffett, the renowned investor, said of bitcoin.
A check may be used to transmit money as well. Is it true that checks are extremely valuable? “Just because they have the ability to send money?” you could ask.
Those who believe cryptocurrencies such as bitcoin will be the currency of the future should keep in mind that a currency must be stable in order for merchants and buyers to know what a fair price for a product is.
Bitcoin and other cryptocurrencies have been everything but stable for much of their existence.
Bitcoin’s value, for example, plunged from almost $20,000 in December 2017 to roughly $3,200 a year later. By December 2020, it was trading at record highs once more.
This variation in pricing is an issue. If bitcoins are worth a lot more in the future, people are less likely to spend and circulate them today, making them less viable as a currency.
Why spend a bitcoin when it may be worth three times as much next year?
Some of the world’s major cryptocurrency exchanges are starting to float on traditional stock exchanges.
Coinbase, a San Francisco-based cryptocurrency exchange, debuted on the Nasdaq stock exchange in April with a market value of more than $100 billion (£70 billion), more than double that of Barclays Bank.
New cryptocurrencies are continually being produced, the bulk of which utilize blockchain technology.
Some are intended to replace official currencies such as the pound or the dollar, while others are intended to build new types of financial applications or to facilitate the exchange of value across digital currencies.
Hacking and other sorts of illegal behavior are more common in cryptocurrency exchanges than in stock markets. As a result of these security breaches, investors who had their digital currency stolen have incurred huge losses.
Unlike stocks or investments, cryptocurrencies are significantly more difficult to keep safe.
Although cryptocurrency exchanges such as Coinbase make purchasing and selling crypto assets such as Bitcoin and Ethereum relatively straightforward, many users prefer not to keep their digital assets on exchanges due to the risk of hacking and theft.
Should You Invest In Cryptocurrency?
Owning cryptocurrencies such as Bitcoin, which have historically had no price correlation with the stock market in the United States, can help diversify your portfolio.
If you believe that cryptocurrency use will expand in popularity over time, it’s probably a smart idea to include some crypto in your portfolio as part of a well-balanced investment strategy.
Before you acquire any cryptocurrency, be sure you have a solid investment thesis. This will assist you in comprehending why the currency will endure.
There are alternative methods to benefit from the bitcoin surge if purchasing cryptocurrency appears to be too hazardous. You may invest in a crypto futures market like CME Group or acquire shares in firms like Coinbase, Square, and PayPal.
While investing in these businesses might be successful, it does not provide the same level of upside as investing directly in cryptocurrencies.