A March 2022 poll revealed that 20% of folks in the U.S. have invested in, traded, or used cryptocurrency. Of these people, 19% had positive views about crypto, while 25% viewed it negatively.
Another survey published in May 2022 yielded different results. It found that over half of U.S. adults own or have already invested in crypto. It also found that 46.5 million Americans plan on buying crypto this 2023 for the first time.
So is crypto a good investment, then? When is investing in cryptocurrency a wise move, and when is it not?
Below, we’ll answer those questions, so read on to learn if and when you should invest and purchase crypto.
When Is Crypto A Good Investment?
Crypto can be a good investment opportunity as it has the potential for very high returns. And when your crypto earns you big, you can withdraw it in cash. You can then invest some of those earnings in lower-risk, stabler assets.
Also, depending on the type of crypto you invest in, it may serve as a hedge against inflation. Likewise, it can help you diversify your portfolio.
Potential For Astronomic Returns
As of January 2023, the crypto market’s estimated value reached over $807 billion. Topping the list with the most market share (39.9%) is Bitcoin (BTC), the first cryptocurrency. It’s also BTC that created crypto millionaires, even billionaires.
BTC has historically offered the potential for astronomic returns. To help you better understand this, you first need to know that Bitcoin only traded at $0.003 to $0.40 in 2010. Then, the following year, its value reached as high as $32.
Fast forward to 2013, and BTC experienced a significant price hike of as much as $1,163. That’s a whopping 36 times more than its 2011 high of $32!
Still, that’s incomparable to when Bitcoin’s value surged from $966 in early 2017 to $19,345 by the end of the year. Then, in November 2021, it reached its highest-ever value of over $69,000.
That’s why many proponents consider BTC as the best crypto for those looking for high returns. Other options are Ethereum (ETH), Tether (USDT), Binance Coin (BNB), and U.S. Dollar Coin (USDC). These are some of the top cryptocurrencies that have yielded massive returns.
Easily Convertible To Cash
Thanks to Bitcoin automated teller machines (ATMs), it’s now easy to cash in on your crypto earnings. So long as you use a bi-directional (2-way) ATM, you can withdraw some of your crypto assets as cash. Best of all, they provide immediate transactions, giving you your money in minutes.
There are thousands of Bitcoin ATMS scattered around the United States. This BTC ATM directory can help tell you which ones are closest to your location.
It’s also worth noting that despite their name, BTC ATMs aren’t exclusively for Bitcoin. They also process transactions for other crypto types, such as ETH, USDT, BNB, and USDC.
You can use such ATMs to sell your cryptocurrencies and convert them into cash when their price is high. Likewise, you can use these machines to buy more coins if their price is low. Some even let you send crypto (or cashed-in crypto) to family and friends.
A Possible Inflation Hedge
Some investment experts tout cryptocurrencies as a hedge against inflation.
Inflation is the rate at which the prices and value of goods and services increase. The higher it is, the lower the value of traditional currencies, such as the U.S. dollar. As a result, you can buy fewer goods and services with your money.
A hedge, in turn, is a medium that can protect a currency’s decreased purchasing power. Some examples are gold and government bonds.
They are “hedges” because they can retain more value than cash in the long term. Their values are also often unaffected by declines in other economic factors.
Some cryptocurrencies, such as BTC and ETH, have performed like hedges. Crypto proponents say this is because they have a limited supply of coins. So, their value may not be subject to the diluting effects of inflation.
Portfolio Diversification
Portfolio diversification is the practice of investing your money in different investment media. One of its primary goals is to help minimize a portfolio’s volatility over time. It does so by balancing high-risk, high-reward mediums with some lower-risk, lower-reward ones.
So with proper portfolio diversification, you can minimize stomach-churning losses. It won’t guarantee profits, but it can help prevent you from losing money. For example, even if your high-risk investments don’t pay off, you still have low-risk, stable ones to rely on.
Crypto can be a diversification strategy because of its historical performance. For instance, its price has shown few correlations with the U.S. stock market. This matters because inflation usually hurts stock prices.
If you decide to invest in crypto, it shouldn’t be your only investment medium. Instead, it should only comprise a small percentage of your portfolio. Just 1% is often enough to expose you to this asset class without compromising your finances.
When Is Crypto Not A Good Investment?
Investing in crypto may not be a good idea if you don’t have the tolerance for high-risk investments. Likewise, it may not be for you if your finances are not yet stable. You should also reconsider purchasing if you’re not prepared to lose a huge chunk, if not all, of your money.
Extremely Volatile
Because of their newness, cryptocurrencies are highly volatile and have extremely speculative markets. There is also no established regulatory regime that governs their trading.
As a result, cryptocurrencies trade at a far more unpredictable rate than bonds or stocks. This volatility is also why digital currencies see massive price hikes and dips.
Take the case of BTC, which, as mentioned above, went from $0.10 to $69,000 in 11 years. Within that timeframe, though, its price also experienced numerous drops. Currently, it’s trading at only about $28,000.
Even ETH, which is less volatile than BTC, has also seen a lot of wild price swings. For starters, it began trading in 2015 at under $1. That shot up to $10 by March 2016, $100 in May 2017, over $1,000 by 2018, and a whopping $4,815 in November 2021.
ETH’s price has since dropped and is now only trading at over $1,200.
If reading about such price swings made you uncomfortable, crypto may not be for you.
Potential For Astronomic Losses
While crypto turned some into millionaires, it also cost many people money. According to one study, 8 in 10 investors suffered losses on their crypto investments.
More concerning is that cryptocurrency values can swing violently, sometimes within 24 hours. If this happens right after you buy crypto, you stand to lose a lot (or everything) overnight.
This incredibly high risk is one of the characteristics of crypto that may not sit well with you. So if you’re risk-averse or unprepared to lose money, this medium isn’t suitable for you. This is also why you should avoid dabbling in crypto if you don’t have stable finances.
Fraught With Other Risks
Crypto advocates tout digital currencies as safer and more secure than fiat currencies. One reason is that cryptocurrency transactions undergo multiple checks and verifications. Theoretically, this means they have a lower risk of forgery and fraud.
Unfortunately, the crypto world isn’t immune to security threats, especially scams. Indeed, the FBI says that digital asset crimes and the monetary losses they cause are rising. So much so that, in 2021, there were 600% more such cases than in 2022.
An example of a cryptocurrency scam is an investment scam. This involves a bad actor enticing investors with promises of massive gains. Unknowing investors then send their crypto to the fraudster, who then disappears.
Phishing scams are also common in the crypto world. These involve fraudsters luring investors to give them their account details. The scammers then withdraw or transfer their victims’ crypto to their accounts.
There are also fake cryptocurrency brokers and crypto wallets. Behind these are bad actors who require victims to deposit money into their accounts. The criminals then steal all that cash, leaving victims without money or crypto.
Scammers aren’t always successful, but some consumers are likelier to become victims. These include newbies and less tech-savvy investors.
If you consider yourself part of that group, you may want to delay investing in crypto. In the meantime, you can hone your tech security skills and learn more about crypto. You can reconsider investing once you’re more confident in your digital security skills.
Investing in Crypto Is Worth a Try
We hope this guide has answered your questions, “Is crypto a good investment, and when is it not?” Now you know it can be, provided you’re willing to take on such a high-risk investment medium. It’s also worth a try if you’re ready (and can afford) to lose money in exchange for potentially high returns.
However, crypto may not be a good investment if you have a low-risk tolerance. You may be better off with more stable mediums.
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