Should I Invest in Cryptocurrency?
Q: Everything I’m reading and hearing about in financial news is investing in cryptocurrencies. Should I get in on it?
A: Investing in cryptocurrency is all the rage, but that doesn’t mean it’s a good choice for everyone. Let’s take a closer look at cryptocurrency and consider if it’s a good idea for you to invest in the “money of the future.”
What is cryptocurrency?
Cryptocurrency is digital money people use as investments and for online purchases. The investor exchanges real currency, (such as U.S. dollars) to buy “coins” or “tokens” of a cryptocurrency. This digital money can only be used at a select (but growing) number of merchants. Cryptocurrency is unique because it’s decentralized and not regulated by any government or institution.
What are the most popular cryptocurrencies?
- Bitcoin. The first and most valuable cryptocurrency by far, Bitcoin was created in 2009. As of this writing on May 24, 2021, one Bitcoin is valued at $37,742. At its peak in mid-April, it was $63,233.
- Ethereum. The second-most popular cryptocurrency is also mineable, which means it allows users to use computers to solve complicated math problems to verify when other crypto transactions are complete. Miners are paid in Ether coins.
- Dogecoin. The crypto that started as a 2013 joke has been dominating financial headlines since the start of the year, thanks to its incredible YTD gains (6072.52% at the time of this writing) and frequent tweets by Tesla’s CEO, Elon Musk, about its future and current value.
Why is cryptocurrency so volatile?
Cryptocurrency’s decentralization also makes it extremely volatile; with no regulation, demand and supply can drive the price of a cryptocurrency through the roof or plummeting to the ground, practically overnight. Recently, viral tweets by billionaire investors, as well as new regulations by the Chinese government, have been dramatically affecting the cryptocurrency market.
Why you may not want to invest in cryptocurrency
Before you pour your life savings into cryptocurrency, consider these factors:
- Cryptocurrency is inherently unstable.
- Cryptocurrency is still a big unknown. Heck, no one even knows who founded Bitcoin!
- Cryptocurrency is often targeted by scams. The FTC warns that crypto’s decentralization means the U.S. government has no obligation to step in and help victims of crypto fraud.
Reasons to consider investing in cryptocurrency
With all the risks involved, you may still want to invest in cryptocurrencies. First, cryptocurrency provides investor portfolios with diversification. Second, cryptocurrency has the potential for outstanding long-term performance. The cryptocurrency market has performed incredibly well over the past decade, and that makes investors confident that similar gains will be enjoyed by those who put their money in cryptocurrency over the next decade as well.
If you do decide to invest in cryptocurrencies, only invest what you can afford to lose. You can invest through a brokerage platform that sells cryptocurrencies, like Robinhood or Binance.