There’s a lot to know and understand about cyptocurrency investment especially for those who are only starting to learn about cryptocurrencies. After all, it could be quite easy to get lost in the wealth of cryptocurrencies when you’re still new to the market place. Hence, first, one must understand what cryptocurrencies are before even considering making an investment.
A cryptocurrency is defined as any digital asset which is spread across a wide network of computers. The term cryptocurrency is used to protect the network. The structure is decentralized, which means it remains outside the reach of central authority or government.
Therefore, investing in cryptocurrencies will not bring about any legal obligations or regulations. While this is a significant benefit for this type of investment, it’s also worth noting the risks involved. Below are a list of cryptocurrency investments’ benefits and risks:
Benefits Of Cryptocurrency Investments
- High Potential Returns
Investing in cryptocurrencies is a chance to invest in something with real ‘value’. An asset that’ll increase in value as time goes by.
One of the statistics considers how USD$1000 investment in Bitcoin Cryptocurrency in 2013 will be worth more than USD$400,000 today. Since Bitcoin’s meteoric rise in popularity in 2017, its market capitalization has risen severalfold from approximately one billion US dollars in 2013.
This solid example makes cryptocurrencies an attractive choice for investors looking to diversify their portfolios without worrying about a significant initial investment.
Many investors put their digital assets into the best crypto savings accounts with interest rates to reduce the inherent risk of cryptocurrency investment.
- Low-Risk Endeavor
Investing in cryptocurrencies is a low-risk endeavor. It’s much easier to lose money in a traditional portfolio because traditional investments are typically invested in ‘safe’ securities with a low likelihood of changing value.
However, investing in cryptocurrencies is an exception because its value isn’t tied to the value of other underlying assets. So, if the value of cryptocurrencies drops, then your investment doesn’t suffer.
- Lower Overhead Expense
Another benefit of investing in cryptocurrencies is, there’s a very little overhead associated with the process. Trading websites for cryptocurrencies charge competitive trading fees. Users have unique passwords and multi-level locks and not prone to fraudulent purposes.
Another reason this type of investment is ideal for people who don’t want to be constantly dealing with the complexities of managing money. Investing in cryptocurrencies is a ‘pay-for-service’ business.
- Lack of regulatory requirements
Another benefit of investing in cryptocurrencies is the lack of regulatory requirements that govern the coins. While many governmental agencies have issued statements regarding the legal status of these coins, the US government is the only one that currently gives the official US coinage. Cryptocurrencies are allowed to be purchased and sold by any US citizen without asking the government for protection.
Risks Of Cryptocurrency Investments
- Cryptocurrencies Are Volatile
One of the first risks of Cryptocurrency investments is its value. The value of a particular currency pair will fluctuate constantly based on factors such as the economy of a country, the events in the country, and the economy of the world in general.
No matter what you do, you can’t expect a currency to always appreciate. Therefore, if you’re dealing with cryptocurrencies, make sure you’re getting them at the correct rate to avoid losing money.
- Scams Due to Unregulated and Unbacked
Cryptocurrencies lack government regulation and enforcement which is a high risk from hackers who use cryptocurrencies to fraud unsuspecting investors. To avoid scams in cryptocurrencies, never give anyone remote access to your digital asset wallet or trading platform. Don’t accept outbound calls asking for confidential personal information, and never send Cryptocurrency to an external address.
- Operational Risk
Unlike centralized regulation in the validity of transactions where there’s a reverse a monetary transaction, in cryptocurrencies your transaction can’t be reversed. For example, bitcoins are cryptographically secured, but you can’t restore your account if your ‘keys’ are stolen or lost.
- Business Risk
Trading platforms have attracted a great deal of speculation for digital currencies seeking fast or long-term gains. Because the central bank doesn’t support them, the price of cryptocurrencies is dictated by market activities. A lack of trust in the market could lead to a decrease in the value, which would have catastrophic consequences in trading activities and an abrupt drop in cryptocurrency value.
Remember no matter what type of Cryptocurrency you’re dealing with, it’s always important to protect yourself. In addition to having a proper strategy, you should also practice safe investing practices. As always, you should do your research and consult with a professional before making before jumping into any investment opportunity in cryptocurrencies.