It is possible to become wealthy by investing in a variety of crypto assets. However, you could also lose your investment completely. Remember, investing in crypto assets is risky, but it can also be incredibly profitable.
Cryptocurrency is a suitable investment if you want to obtain exposure to the demand for digital money. But rather, it is safer to invest in the stocks of companies dealing in crypto.
Let’s look at the benefits and drawbacks of investing in crypto.
Is Investing in Crypto Assets Safe?
The blockchain technology behind cryptocurrencies is inherently safe. However, this does not imply that it is fully secure in the same way that most people see the US dollar or other established currencies. Because any political entity does not back bitcoin, it lacks the same protection as many traditional currencies worldwide.
Furthermore, the Consumer Financial Protection Bureau identifies additional risks that investors should know. These risks are fluctuating currency rates, potential excessive fees on exchange platforms, and fraud risk. In addition, with the decentralized nature of blockchain and the lack of governmental regulation, it might be challenging to reclaim your money if it’s lost or stolen.
Most importantly, simply because cryptocurrency is secure does not imply that it is safe. While some of the cryptocurrency’s current popularity has been fueled by investors’ trust in its value, that value is still based on speculation.
Risks Involved in Crypto Assets
More than stock markets, cryptocurrency exchanges are vulnerable to hacking and becoming targets of illicit activities. Thus, these security flaws have resulted in significant losses for investors whose digital money have been stolen.
Furthermore, cryptocurrency exchanges like Coinbase make it very simple to buy and trade crypto assets like Bitcoin and Ethereum. Still, many users prefer not to retain their digital assets on exchanges owing to the risk of hacks and theft.
Some bitcoin owners prefer offline “cold storage” options like hardware or paper wallets; however cold storage has its issues. The most severe risk is losing your private key, which is required to access your crypto.
There is also no guarantee that a cryptocurrency project in which you invest will succeed. There is tremendous competition among thousands of blockchain companies. Furthermore, ventures that are nothing more than scams are prevalent in the crypto market too.
Remember, only a limited number of cryptocurrency projects will succeed in the long run. Regulators may potentially crackdown on the entire crypto business, mainly if countries come to see cryptocurrency as a threat rather than a cutting-edge technology.
Despite the inherent risks, cryptocurrencies and the blockchain business continue to expand. Much-needed financial infrastructure is being constructed, and institutional-grade custodial services are becoming more accessible to investors. Professional and individual investors are progressively gaining access to the tools they need to manage and protect their crypto holdings.
Crypto futures markets are emerging, and many businesses are gaining direct exposure to the cryptocurrency sector. Square and PayPal are making it easier to buy and sell cryptocurrencies on their popular platforms. At the same time, companies, including Square, have invested hundreds of millions of dollars in Bitcoin and other digital assets. In early 2021, Tesla purchased $1.5 billion in Bitcoin.
While various factors continue to influence the riskiness of cryptocurrencies, the increasing adoption rate is a positive sign for the crypto sector. Individual investors and corporations alike are attempting to obtain direct exposure to cryptocurrencies, believing it to be safe enough for significant sums of money to be invested.
Is it Advisable to Invest in Crypto Assets for the long term?
Many crypto assets, such as Ethereum and Bitcoin, are founded with ambitious goals that may be realized over long time. While the success of any cryptocurrency cannot be guaranteed unless it meets its objectives, early investors may still be highly rewarded in the long run.
Long-term Investment in Bitcoin
Since Bitcoin is the most well-known cryptocurrency, it benefits from the network effect. More people want to acquire it because it is the most coveted crypto asset. Many speculators regard Bitcoin as “digital gold,” but it might also be used as a digital form of payment.
Unlike fiat currencies, Bitcoin investors believe the cryptocurrency will increase in value over time since the supply is fixed. Plus, Bitcoin’s supply is limited to a little under 21 million coins. Still, currencies centrally controlled by the bank can be printed at will.
Those who believe Bitcoin will be widely utilized as digital cash feel that it can become the first truly global currency in the long run.
Long-term Investment in Ethereum
Ether is the native coin of the Ethereum platform and may be purchased by investors looking to diversify their portfolios. While Bitcoin can be thought of as digital gold, Ethereum constructs a worldwide computing platform that will support many other cryptocurrencies and a vast ecosystem of decentralized applications.
Furthermore, with the enormous number of cryptocurrencies established on the Ethereum platform and the open-source nature of Dapps, Ethereum has the potential to profit from the network effect and create long-term value. The Ethereum platform supports “smart contracts,” which execute automatically based on terms placed directly into the contract code.
In return for executing smart contracts, Ethereum takes Ether from users. Smart contract technology can significantly disrupt huge industries such as real estate and finance and establish new markets.
The utility and value of the Ether token increases as the Ethereum ecosystem gains worldwide attention. Investors that believe in the Ethereum platform’s long-term potential can profit directly by purchasing Ether.
Should you Invest in Crypto Assets?
Cryptocurrencies such as Bitcoin have historically exhibited almost no price correlation with the US stock market, but owning some can help diversify your portfolio. Remember to have an investment thesis for each crypto asset you invest in, explaining why that asset will stand the test of time.
If purchasing crypto appears to be too risky, you can examine other ways to profit from it. You can buy equities in firms like Coinbase, Square, and PayPal, or you can invest in an exchange like CME Group, which supports cryptocurrency futures trading. While investments in these companies can be beneficial, they do not have the same upside potential as investing directly in crypto assets.