Is Cryptocurrency a Good Investment?
With trillions of dollars invested and all the hype in cryptocurrencies and new crypto projects being presented daily, the question a large number of investors are thinking about is if cryptocurrencies are a good investment.
Is Cryptocurrency a smart investment for You?
Firstly, we need to make distinction between investing and trading – the biggest difference is the time horizon. With trading any asset, the time horizon tends to be short-term and quite often more speculative as the name indicated. It’s not at all rare for traders to try and do many trades a day to take advantage of intra-day price fluctuations.
Trading vs Investing
Trading is approached with discipline as those who are most successful carefully manage their exposures. On the other hand, investing is a disciplined plan but meets specific financial targets on the longer period, usually 5 years or even more. Investors may make a strategy in order to save for college, buy a house, or insurance policy for retirement.
Next, you have to examine your risk tolerance. As cryptocurrencies experience volatility, whether cryptos is an excellent investment depends on simply how much risk you are able to bear. If even small swings in prices keep you up at night, higher volatility investments may not be the best investment for you.
With crypto assets experiencing levels of price volatility that aren’t too different from those felt by other asset classes, including growth stocks or high-yield bonds, they may be risky assets. You should be happy to face fairly significant price swings or potential loss.
Advantages of Buying Cryptocurrency
Up to now, we’ve discussed some of the main considerations that investors must be cautious with but you’ll find certainly positive arguments about whether cryptocurrencies are a good investment too.
1. New asset class
As cryptocurrencies mature and develop, like we’ve seen with Bitcoin and Ethereum, additionally we understand the emergence of which assets being a new asset class. To be sure, we’ve seen large professional fund managers, creating dedicated investment funds solely committing to Bitcoin and also other cryptos.
This institutional investors also look for diversify their risks keeping different investments that behave differently within the same economic conditions. Some debate that cryptocurrencies provide positive diversification effects, specifically against rising inflation.
Moreover, we’ve seen the creation of more investment instruments that capture the upside of not merely specific cryptocurrencies, including options and futures on Bitcoin and Ethereum, but additionally specific investment funds that professionally manage cryptocurrencies with respect to investors.
3. Upside potential
Lastly, another positive is the fact that the sphere is very new, and therefore there are potentially a lot more changes that will come down the road to produce investing in cryptocurrencies much more attractive. Examples are stablecoins, which are cryptocurrencies that are linked to the value of a fiat currency and assets to back a digital currency.
In case you worry about fraud, there may be more stringent regulations, say to cope with the Initial Coin Offerings, to aid protect investors. We mentioned futures on cryptocurrencies and because the market develops, there may be futures on other cryptocurrencies which are traded on a reputable exchange. Futures also accommodate cryptocurrency bears to trade the asset short, thereby helping the liquidity overall.
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