Is Cryptocurrency a Good Investment?

08/19/2021 12:00 AM by Rowdy in Crypto currency

In 2021, investing in cryptocurrencies has the potential to make you extremely wealthy. However, you could lose all of your funds. How can both be true at the same time? Investing in crypto assets is risky, but it can also be incredibly lucrative.
If you want direct exposure to the demand for digital money, cryptocurrency is an excellent investment, while stocks of firms with cryptocurrency exposure are a safer but perhaps less rewarding alternative.
Let's look at the benefits and drawbacks of investing in cryptocurrencies.

Is cryptocurrency a safe investment?

Several considerations make cryptocurrencies untrustworthy, at least for the time being, while other signals indicate that it is here to stay.

Risks associated with cryptocurrencies

Cryptocurrency exchanges, more than stock markets, are prone to hacking and other forms of criminal behavior. Investors who have had their digital currencies stolen have suffered significant losses as a result of these security breaches.
Cryptocurrencies are much more difficult to store safely than equities or bonds. Cryptocurrency exchanges like Coinbase (NASDAQ:COIN) make buying and selling crypto assets like Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH) relatively simple, however many users prefer not to retain their digital assets on exchanges owing to the aforementioned risk of cyberattacks and theft.
Some cryptocurrency users prefer "cold storage" methods such as hardware or paper wallets, however cold storage has its own set of issues. The most serious danger is losing your private key, which is required to access your money.
Additionally, there is no guarantee that a cryptocurrency project you invest in will thrive. Thousands of blockchain ventures compete for attention, and the crypto market is littered with projects that are nothing more than scams. Only a few cryptocurrency projects will succeed in the long run.
Regulators may potentially target the entire crypto business, particularly if countries begin to regard cryptocurrency as a threat rather than a cutting-edge technology.
Furthermore, the fact that cryptocurrencies are based on cutting-edge technology raises the dangers for investors. Much of the technology is still under development and hasn't been thoroughly tested in real-world circumstances.

Cryptocurrency adoption

Despite the inherent dangers, cryptocurrencies and the blockchain sector continue to expand. Investors are increasingly able to obtain institutional-grade custody services as much-needed financial infrastructure is being constructed. Professional and individual investors are gradually gaining access to the tools they need to manage and protect their cryptocurrency holdings. 
Many firms are gaining direct exposure to the cryptocurrency sector, and crypto futures markets are being developed. Square (NYSE:SQ) and PayPal (NASDAQ:PYPL), two financial behemoths, are making it easier to purchase and trade cryptocurrencies on their popular platforms, while other corporations, including Square, have collectively invested hundreds of millions of dollars in Bitcoin and other digital assets. In early 2021, Tesla (NASDAQ:TSLA) purchased $1.5 billion worth of Bitcoin.
While various factors continue to influence the riskiness of cryptocurrencies, the growing adoption rate is an indication of an industry evolving. Individuals and businesses alike are seeking direct exposure to cryptocurrencies, believing it to be safe enough to invest big sums of money.

Is crypto a good long-term investment? 

Many cryptocurrencies, such as Bitcoin and Ethereum, are founded with ambitious goals that can be achieved over long periods of time. While the success of any cryptocurrency initiative is not guaranteed, if it meets its objectives, early investors may be well rewarded in the long run.
To be regarded a long-term success, any cryptocurrency initiative must first achieve widespread adoption.

Bitcoin as a long-term investment 

Because Bitcoin is the most well-known cryptocurrency, it benefits from the network effect, which means that more people want to acquire it because it is the most popular. Many investors regard Bitcoin as "digital gold," but it might also be used as a digital form of money.
Bitcoin investors believe the cryptocurrency will appreciate in value over time since the supply is limited, unlike fiat currencies like the US dollar or the Japanese yen. Bitcoin's supply is limited to little under 21 million coins, but central bank-controlled currencies can be issued at politicians' discretion. Many investors believe that when fiat currencies decrease, Bitcoin will appreciate in value.
Those who believe that Bitcoin will be widely utilized as digital cash feel that it has the potential to become the first truly global currency in the long run.

Ethereum as a long-term investment

Ether is the Ethereum platform's native coin, and it may be purchased by investors who want to invest their money using Ethereum. While Bitcoin is considered digital gold, Ethereum is developing a worldwide computing platform that will enable a wide range of other cryptocurrencies as well as a vast ecosystem of decentralized applications ("dapps").
Because of the enormous number of cryptocurrencies established on the Ethereum platform, as well as the open-source nature of dapps, Ethereum has the capacity to profit from the network effect and generate long-term value. The Ethereum platform allows for the use of "smart contracts," which run automatically based on terms specified directly into the code of the contract.
In return for executing smart contracts, the Ethereum network takes Ether from users. Smart contracts have the ability to disrupt large businesses like real estate and finance, as well as to create totally new markets.
The Ether token gains utility and value as the Ethereum platform gets more widely used around the world. Investors that believe in the Ethereum platform's long-term potential can profit directly by purchasing Ether.

Should you invest in cryptocurrency?

Cryptocurrencies, like as Bitcoin, have historically had little price correlation with the stock market in the United States, so owning some can help diversify your portfolio. If you believe that cryptocurrency use will grow in popularity over time, it's probably a good idea to invest in some crypto as part of a balanced portfolio. Make sure you have an investment thesis for each cryptocurrency you buy. This will help you understand why the currency will last.
If purchasing cryptocurrency appears to be too risky, there are other ways to profit on the boom of cryptocurrencies. You may buy equities in firms like Coinbase, Square, and PayPal, or invest in an exchange like CME Group (NASDAQ:CME), which allows you to trade cryptocurrency futures. While investing in these companies can be beneficial, it does not offer the same level of upside as investing directly in cryptocurrencies. 

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