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While investing in cryptocurrencies can make you extremely wealthy, there is also a good chance that you will lose everything you have. Cryptocurrency investing is dangerous, but it is manageable when done as a part of a diversified portfolio. It might, for instance, be a wise investment.
If you want to profit directly from the demand for digital cash, investing in cryptocurrencies is a wise move. Purchasing shares in businesses exposed to cryptocurrencies is a safer but possibly less lucrative alternative.
Let’s examine the benefits and drawbacks of cryptocurrency investment.
Is Cryptocurrency Safe?
Numerous factors suggest that cryptocurrencies are not necessarily a secure form of investing. Other indications that cryptocurrencies are here to stay are emerging in the meanwhile.
Not simply exchanges but also other types of illegal activities can target cryptocurrency exchanges. Due to the significant losses suffered by investors whose digital currencies were taken as a result of the security breach, numerous exchanges and third-party insurers now provide protection against hacking.
It is also more difficult to keep cryptocurrency secure than stocks and bonds. Cryptocurrency exchanges like Coinbase and Breet make it very simple to purchase and sell digital assets like Bitcoin and Ethereum, but many people think that the possibility that each corporation could be able to restrict access to their assets makes digital currency less secure. I dislike keeping my possessions on exchanges.
You lose complete ownership of your assets if you store your cryptocurrency on a centralised exchange. The authorities may ask the exchange to freeze assets, or the exchange could file for bankruptcy, and you wouldn’t be able to receive your money back.
The use of hardware wallets and other offline “cold storage” methods is preferred by some cryptocurrency owners, however cold storage has its own drawbacks. The loss of the private key is the largest danger. It is difficult to access cryptocurrencies without the key.
Additionally, there is no assurance that the cryptocurrency initiatives you fund will be profitable. There is intense competition among the thousands of blockchain projects, many of which are little more than frauds. The success rate for bitcoin projects is quite low. In particular, if governments see cryptocurrencies as a threat rather than a ground-breaking technology, regulators may decide to target the entire cryptocurrency business.
Investor risk is also increased by cryptocurrencies’ cutting-edge technology components. A lot of the technology is still in the development stage and needs further real-world testing.
Despite the dangers, the bitcoin and blockchain industries are just growing. The building of much-needed financial infrastructure is taking place, and institutional custody services are becoming more widely available to investors. Investors of all levels are gradually getting the resources they need to manage and safeguard their crypto holdings.
Numerous businesses are joining the cryptocurrency sector directly as a result of the creation of the crypto futures market. On their well-known platforms, financial behemoths like Block and PayPal make it simple to purchase and trade cryptocurrencies. Block is one of the companies that is investing hundreds of millions of dollars in Bitcoin and other digital assets. Early in 2021, Tesla will purchase Bitcoin for $1.5 billion. The manufacturer of electric vehicles claims to have approximately $2 billion in cryptocurrencies as of February 2022.
Since 2020, the business intelligence software provider MicroStrategy has been building up its Bitcoin holdings. The risk associated with cryptocurrencies is still influenced by other factors, but the market is maturing as adoption rates go up. Individual investors and companies seek direct exposure to cryptocurrencies because they think they are secure enough for significant financial investments.
Is Cryptocurrency a Good Long-Term Investment?
Many cryptocurrencies, including Bitcoin and Ethereum, are introduced with grand objectives that can be fulfilled in the long run. Although the success of cryptocurrency initiatives is not guaranteed, early investors in those that succeed might enjoy substantial long-term profits.
To be deemed a long-term success, a cryptocurrency initiative must, nevertheless, gain widespread acceptance.
Bitcoin as a Long-Term Investment
The most well-known cryptocurrency, Bitcoin, gains from network effects. More people want to own Bitcoin now than the majority of people do. Bitcoin can be used as a digital form of money, but many investors now refer to it as “digital gold.”
Due to its steady supply, unlike fiat currencies like the US dollar and Japanese yen, bitcoin investors believe that the cryptocurrency will increase in value over the long term. While other currencies can be freely issued by central banks, the supply of Bitcoin is restricted to a maximum of fewer than 21 million coins. Many investors anticipate that when fiat currencies decline, Bitcoin will climb. Those who are hopeful about the adoption of Bitcoin as a major digital currency think it may eventually replace all other currencies.
Ethereum as a Long-Term Investment
Investors who want to increase their portfolio exposure to Ethereum can buy ether, the native coin of the Ethereum network. Ethereum is developing a worldwide computing platform that enables a vast ecosystem of many other cryptocurrencies and decentralised apps (or “dApps”), while Bitcoin can be thought of as digital gold.
Because so many cryptocurrencies and decentralised applications (dApps) are open-source, there are chances for Ethereum to take advantage of network effects and produce long-term, sustainable value. The Ethereum platform supports “smart contracts,” which automatically carry out in response to conditions specified in the contract code.
In return for executing smart contracts, the Ethereum network receives payment from users in the form of Ether. Large industries like real estate and finance might be completely disrupted by smart contract technology, opening up brand-new marketplaces.
The Ethereum token’s value and utility will rise as the Ethereum platform is used more frequently globally. Owning Ether has obvious advantages for investors who think the Ethereum platform has long-term potential.
This is not to argue that Ethereum is unchallenged in the market. Many “Ethereum killers,” like Solana, Polygon, Avalanche, and others, are built on blockchain platforms that can handle smart contracts and more transactions per second. Speed also saves users money, which is an extra bonus. However, the most widely used platform for using smart contracts is Ethereum.
Should You Invest in Cryptocurrency?
Owning a cryptocurrency can help diversify your portfolio because, historically speaking, cryptocurrencies like Bitcoin have had little price correlation with the US stock market. If you believe cryptocurrencies will gain popularity over time, it makes sense to purchase them outright as part of a balanced portfolio. Make sure you have a thesis for your investments. You should be able to manage investment risk as part of your total portfolio by conducting thorough research and knowing as much as you can about investing in cryptocurrency.
You might think of other ways you might profit from the rise of cryptocurrencies if purchasing them seems too risky. You can invest in exchanges like CME Group that enable trading in cryptocurrency futures, as well as purchase shares of firms like Coinbase, Block, and PayPal.