Cryptocurrencies have been big news in recent years, with digital currencies like Bitcoin making headlines after some unexpected and somewhat volatile drops and spikes in value. Cryptocurrency may have caught your eye during this media attention, and you may be thinking about investing. Not sure where to start? In this article, you’ll learn essential information on how to add cryptocurrencies to your own investment portfolio.
What is cryptocurrency?
Cryptocurrency is a digital currency, which is money that does not exist in any physical form. Since the inception of the first digital altcoin in the late 2000s, Bitcoin, cryptocurrencies have traditionally attracted crypto investors with their insider knowledge of blockchain technology. More recently, however, they have offered an option to many more mainstream investors, with the added bonus of being independent of government regulation: a major draw, particularly for investors in countries with uncertain economies.
Where to buy cryptocurrency?
Because it is a digital currency, the Altcoin investment is available exclusively through cryptocurrency exchange specialized . One of the most popular worldwide is the Binance, which provides a platform for buying, selling and investing. The most well-known altcoins are Bitcoin, Ethereum and Litecoin, and they have made headlines on several occasions over the past few years. It is important to be aware that many other altcoins are available and it is worth doing some research on them before buying, but always remember that the less well-known the coin, the greater the risk of buying it.
Should I invest in cryptocurrency?
The decision to invest in cryptocurrency is entirely yours and depends on your views on the future of digital money. There is no denying that Altcoins saw a massive increase in value in recent years, but it is not necessarily clear that this growth will continue. The future of digital currencies is unknown, so it is fair to say that long-term investment plans involve a large element of risk.
The lack of government regulation for cryptocurrency attracts many investors, sometimes because they are looking for some financial security away from a failing domestic economy and political instability. Cyprus saw a huge increase in cryptocurrency investment due to the 2013 financial crisis, for example, when investors lost credit at traditional banks. This lack of government regulation also attracts underground activities, however, it should be noted that such activities can increase the volatility of cryptocurrencies and increase the risks associated with long-term investment. Also, you should note that sufficient education on cryptocurrency trading is necessary before you get serious.
Some financial experts suggest that digital currency will eventually replace traditional currency, and of course none of us know if that’s true. If that were to happen, governments would have to get involved, and while the future of digital currencies would become more solid in a clear sense, it would change the use and value of cryptocurrency beyond recognition. So even if you believe this to be true, it doesn’t negate the long-term risk involved in deciding whether to add crypto to your financial portfolio.
How much to invest in cryptocurrency?
As with any investment, the old adage holds true about not putting all your eggs in one basket, and it's wise to remember this if you're considering a digital investment. Cryptocurrency was big news in the decade since bitcoin’s launch, and offers something a little different than traditional currency, making it a potentially exciting and fun addition to an investment portfolio. It’s true that the long-term future of cryptocurrency is uncertain, but risky investments can certainly go up or down, and if you’re willing to take a calculated investment risk, it could pay off in the end.
Bridget Casey offers good advice in her article for Money after Graduation: “Never put more than 3% of your investment portfolio into a single investment.”
Of course, it’s up to you how closely you follow this guidance, but any investor would agree that it’s not wise to risk the security of your entire long-term finances. It may very well be worth holding a percentage of your investments in cryptocurrencies so that you don’t lose, but as with any investment, only buy what you can afford to lose.
What are the advantages of investing in cryptocurrency?
There are a number of advantages to investing in cryptocurrency that can help you make the decision to invest.
1. Cryptocurrencies offer protection against political and economic instability
Whether you live in Brazil, Mozambique, or Portugal, cryptocurrencies regularly see spikes in value due to a surge in investment in countries that are experiencing financial and political turmoil. The reason for this is that investors in these countries, such as those in Cyprus during the 2013 financial crisis, are losing credit with traditional government-controlled banks. They are looking for a place to put their investments that is separate from this economic instability and that keeps their money safe, and they are increasingly turning to cryptocurrencies to keep their wealth away from government control.
2. Cryptocurrencies offer anonymity and protection against fraud
Cryptocurrencies are cryptocurrencies, making all transactions untraceable and anonymous. This is very appealing to many investors who want to keep their personal wealth information private. It also means that cryptocurrencies are protected from fraud, as personal information is not available and the coins cannot be copied or counterfeited.
3. Cryptocurrencies offer a global investment opportunity
Investing in cryptocurrency is a global opportunity. No single government regulates altcoin investments, which means anyone, anywhere can invest. All you need is the funds to buy your cryptocurrency and an internet connection.
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What are the disadvantages of investing in cryptocurrency?
As an investor, you should also be aware of the disadvantages and risks involved in investing in cryptocurrencies.
1. The value of cryptocurrency is volatile
Cryptocurrencies experience what are sometimes huge spikes and drops in value, and their value can be very quickly influenced by media or financial events. Overall, their value has seen a huge increase in value in recent years, but during that time there have also been considerable drops in value that would scare the most experienced investor.
2. Cryptocurrencies are vulnerable to theft and accidental loss
Digital currencies are vulnerable in the same way as any other digital commodity, and over the years, user error and hackers have contributed to cryptocurrency loss that is therefore irrecoverable. It can also be a problem if you take your own cryptocurrency security very seriously. It is not uncommon for investors to lock their online accounts, and again, once Altcoins are lost, they cannot be recovered.
3. Cryptocurrency is not a commonly accepted form of spending currency
What will you do with your cryptocurrency once you’ve bought it? Cryptocurrency, by definition, is supposed to be accepted as payment for goods or services, but there are still very few places where cryptocurrencies can be spent. This is a turn-off for some investors. It also means that crypto investors tend to hoard their holdings, which can put the long-term value of cryptocurrencies at risk.
4. Cryptocurrency is used in many underground activities
The anonymity of cryptocurrency investing inevitably makes it attractive to underground investors involved in illegal and illicit activities such as drug and sex trafficking and terrorist activities. Investing in cryptocurrency does not mean that investing in it is prohibited in any way, but investors should be aware of this black market activity so that they can make their own moral judgment about whether to invest.
5. Cryptocurrency has an environmental cost
Cryptocurrency in general and Bitcoin in particular require a lot of energy to mine. Environmentally conscious investors should do their research on energy use, pollution, and long-term sustainability for the environment.
I've weighed the pros and cons and am ready to invest. What do I do next?
So you’ve decided that you’d like to invest a portion of your wealth in cryptocurrencies. In doing so, you’ll join many other investors who have decided that the thrill of investing in modern blockchain-derived currencies is likely to outweigh the uncertainty of their long-term future.
There is a lot of information online about cryptocurrencies and how to start investing. One of the easiest ways to get started is by visiting an online platform like Binance, where you can make informed choices about when and how much to buy or sell, and which also helps you manage your investment as you go.
With so many investors jumping on the cryptocurrency bandwagon, the short-term future at least looks bright. Do your research, assess your risks, and only spend what you can afford to lose. And remember, risk doesn’t necessarily mean loss, your investment could very well pay off!