Is investing in cryptocurrency a good idea? This is a controversial issue that is likely to cause heated debate whenever it is brought up. On the one hand, cryptocurrency has been obliterating records, with Bitcoin’s price increasing by 100% this year, Ethereum by over 400% and Dogecoin by upto 7,800%. However, many financial experts are hesitant to endorse it, seeing it as a bad investment and predicting that it is only a matter of time before the cryto-bubble bursts. Today, we consider the pros and cons of investing in cryptocurrency.
Why invest in cryptocurrency?
- It may be the next big thing
While cryptocurrency is still not widely accepted as a way to pay for goods and services, it is slowly gaining recognition around the world. Since it is a global currency, it has the potential to revolutionize trade and by extension the global economy. Investing in it now could have massive payoff in a future where cryptocurrency has been widely adopted.
- Diversification of your portfolio
Investing a portion of your portfolio into cryptocurrency will allow you to diversify your portfolio. This could come with benefits such as balancing risk, while giving you the chance to venture into and learn more about crypto.
Why avoid cryptocurrency?
- Extreme volatility
Cryptocurrency is notorious for being very volatile. For example, in the last few weeks, Ethereum lost over 50% of its value. Bitcoin, the most widely known cryptocurrency, at one point dropped by approximately 80%. Such drastic movements can result in major losses for investors.
It is difficult to predict how various cryptocurrencies will perform. The fact that its value is not necessarily linked to an underlying asset also adds to this and makes it a high risk investment.
- Not regulated
Those who invest in cryptocurrency do so despite the fact that it is not regulated by most governments. The downside of this is that investors get almost no protections. In the event of a loss, they have no legal recourse. Moreover, the lack of regulation makes it difficult to distinguish between real crypto traders and scammers. This creates room for fraudsters, who peddle fake cryptocurrencies and cheat investors out of their capital.
So is investing in cryptocurrency a good idea? Objectively, that remains to be seen. The benefits are hard to deny. However, the dangers are also very real. If you are determined to invest in them, do extensive due diligence, only apportion a fraction of your portfolio to it, and be aware of and willing to accept the risks that come with it.