Pros And Cons Of Investing In Cryptocurrencies

The market has been volatile, to say the least, with bitcoin prices plummeting and soaring almost daily. Some investors are hesitant to invest in this market.

Others believe it’s a great time to jump on board – before everyone else does. For most people, investing in the digital currency market can seem like a risky proposition.

However, with proper research and understanding of your personal financial situation and risk tolerance, you can make an informed decision about whether or not you want to invest in cryptocurrency.

Here are some pros and cons of investing in cryptocurrency that may help you decide if it’s right for you at this time.

Pros Of Investing In Cryptocurrency

It’s A New Asset Class

Digital currencies are a new asset class that behaves in different ways from stocks and bonds. Some cryptocurrencies are designed to be used as a method of payment, while others are more of a store of value and act as an investment tool.

Liquidity

The size of bitcoin’s daily trading volume is about $4 billion, according to CoinMarketCap. That’s a lot of money, and liquidity is a big benefit. If you hold a stock that you like, you may have a hard time selling it when you need the money. There could be no buyers, or you may have to sell it at a discount to what you paid for it.

Volatility

Some people see the volatility of cryptocurrency prices as an opportunity, but others see it as a risk. The volatility can be a positive thing, especially if you’re holding a long-term investment.

Taking advantage of tax breaks

You may be able to take advantage of tax breaks by investing in bitcoin and other cryptocurrencies. Depending on which country you live in, you may be able to deduct your losses against your income or defer capital gains taxes by investing in a tax-advantaged account.

Cons Of Investing In Cryptocurrency

Volatility

Cryptocurrency is extremely volatile. It’s possible that you could lose all of your money. That’s why it’s important to choose which coins to invest in and understand their risk/reward potential.

Regulatory And Legal Risk

Cryptocurrencies are still largely unregulated by governments around the world, and this could change at any time.

Security Concerns

Cryptocurrencies are digital assets that are entirely dependent on computers and the Internet. This means that they’re subject to hacking and cyberattacks. There have been many instances of people losing a large portion of their cryptocurrency assets due to hacks and scams.

Lack Of Diversification

Investors who put their money into a single cryptocurrency are not diversified. If the coin collapses or fails, you could lose everything you put into it.

Illiquidity

Cryptocurrency is relatively illiquid (not easy to sell). You may be unable to get cash quickly if you need it.

Who Should Not Invest In Cryptocurrency?

People Who Can’t Afford To Lose Their Money

Investing in cryptocurrency is risky. You could lose all of your money. If you don’t have a high tolerance for risk and are not willing to lose some or all of your investment, you should not invest in cryptocurrency.

People Who Don’t Have Time To Research

Another risk of investing in cryptocurrency is that there’s a chance you may not choose the right coins to invest in. To make sure you’re making a profitable investment, you’ll need to do extensive research on various digital currencies and the blockchain technology behind them.

People Looking For Stable Income

If you’re looking for a source of stable income, you should not invest in cryptocurrency. There’s no guarantee that you’ll make a profit from your investment, and there’s also a chance you could lose some or all of your money.

How To Research Which Coins To Invest In?

Past Performance Doesn’t Guarantee Future Performance

Just because a coin performed well in the past, doesn’t mean that it will do the same in the future. You’ll want to read up on each coin and analyze its potential.

Crunch The Numbers

You can perform your own analysis with CoinMarketCap’s calculator. You’ll be able to see the current price, market cap, daily traded volume, and potential price based on the number of coins that are available.

Evaluate The Team Behind The Coin

The team behind the coin is just as important as the coin’s technology. You’ll want to research the developers behind the coin, check out their backgrounds, and see if they have any experience in the blockchain and cryptocurrency field.

Final Words

As with any investment, it’s important to do your research before committing your money. Cryptocurrency is a risky investment, but it can also be extremely rewarding. If you have the time, patience, and money to lose, it may be worth your while to invest in this new and exciting market.