Pros & Cons of Investing in Cryptocurrencies You Should Consider
Before you start investing in cryptocurrencies, make sure you know what you're getting into.
If there's anything that has seriously taken off as far as investing trends go, it's cryptocurrency. People are now buying Bitcoin mining hardware, looking for online cryptocurrency mining and trading courses, and even talking about which altcoin will be the next to boom.
Truth be told, the returns on Bitcoin alone show that it might be a great way to make money. However, like with any investment, there are serious perks and pitfalls to consider. Here are the biggest things you need to take into account when figuring out whether investing in cryptocurrencies is right for you...
Pro: The returns exceed the stock market by huge amounts.
If you were to invest in the best mutual funds currently on the market, you might be able to get an 11 percent annual return on investment. That's about 9 percent more than inflation, and overall, a very respectable ROI. However, if you were talking about investing in cryptocurrencies, that'd be pretty abysmal.
The biggest perk to investing in crypto is the high rate of returns. It's not uncommon to hear about 50 percent annual returns or more, even when it comes to smaller coins. There's definitely money that can be made there.
Cons: Volatility is way higher than it is in traditional investing methods.
If you thought that commodities and penny stocks were the most dangerous investments you can make due to the volatility of the market, you're dead wrong. It's not uncommon for certain cryptocurrencies to fluctuate so hard that the value of the coin ends up getting halved.
In some cases, people have lost sizable portions of their life savings because they chose to funnel it all into crypto. So, this definitely counts as a pitfall if you think about what can happen.
Pro: You don't actually need to be a millionaire to start investing.
A common myth about investing in cryptocurrencies is that you have to have a lot of money to start doing it. Sure, a single Bitcoin costs several thousand dollars, but that doesn't mean you have to buy whole Bitcoins to begin with.
Bitcoins can be "sliced" down to eight decimal points. So, realistically, you could start investing with as little as a couple of dollars. It's a real open market.
Con: It's not backed by any government or company.
Many people who are against the concept of investing in cryptocurrencies will point this out as a cause for concern. More people should be concerned about this than you'd think.
With any other form of investment, there's some kind of guarantee. Fiat currency is backed by governments. Bonds are backed by companies and governments. Stocks are backed by companies. With decentralized currencies like crypto? Well, nothing is backing them.
This sounds like it's not a big deal, but it is. This puts you at greater risk of total loss, and if you end up getting hacked and having your coins stolen, you won't have anywhere to turn to if you want to salvage lost money.
Due to its high risk nature, it's best not to invest any money you can not afford to lose.
There are quite a few types of alternative investments that require you to call up brokers, show up in person, or otherwise do a lot of extra work just to set things up. Cryptocurrencies, much like stocks, can be traded easily using apps like Coinbase.
Some stock trading apps for beginners, like Robinhood, even allow you to trade cryptocurrencies on the side as an option. Needless to say, investing in cryptocurrencies is a lot easier than other alternatives. That's a huge perk.
Con: Security is really an issue with crypto.
If you take a look at some of the headlines that have taken crypto news sites by storm in the past, you'll notice that there's a serious issue when it comes to cybersecurity. Theft is a massive issue with investing in cryptocurrencies.
There have been many cases in which hackers have stolen Bitcoin accounts from people without getting caught. Others have created Bitcoin wallet scams that ruin peoples' bank accounts. Learning how to spot a Bitcoin wallet scam is a huge deal for this reason—as is choosing one of the best Bitcoin wallets on the market.
Pro: Liquidity means that you can turn your investments into money fast.
A lot of investments you can make aren't very liquid, and this can bode badly for casual investors that end up in the middle of an emergency. After all, if you need money now, waiting for your checks to clear in 10 years will not help you.
Investing in cryptocurrencies is actually surprisingly liquid—and to a point, it makes sense. There are now brand-name retailers that accept Bitcoins and the like. It’s a form of currency. Just trading it on the exchange will allow you to get the money you need fast.
Con: It’s not something you can trade in real-time (technically).
Even with the fastest alt coins out there, investing in cryptocurrencies means that you will have wait times. A lot of currencies will also require Proof-of-Work in order to have transactions clear, and that can take as long as 30 minutes or more depending on the currency you choose. It’s a minor issue, but it’s still annoying.
Pro: There are ample resources to help you learn.
Worried about not knowing enough to invest wisely? If there’s one thing we can safely say about investing in cryptocurrencies, it’s that there are ample resources to choose from. Whether it’s crypto news sites, rankings of the best Bitcoin wallets online, or just checking out online forums, you’ll be able to find guidance—and a legitimately supportive community—on the net.
Con: The biggest boom has already passed.
As much as we hate to say it, the biggest boom in cryptocurrency history most likely already past. Bitcoin went from being worth pennies to being worth thousands of dollars, and that’s not something that you will likely ever see again. However, that doesn’t mean that you can’t profit well from investing in cryptocurrencies.
The profit is there if you choose to take it. However, all of that will remain on you.