Unless you have been living under a rock for the past two years, you have probably heard of cryptocurrency. Cryptocurrency has taken several forms such as Bitcoin, Ethereum and Dogecoin, just to name a few. Cryptocurrency can be used for a variety of purchases such as Non-Fungible Tokens (NFT). Cryptocurrency can also be used for goods and services. For example, Tesla allows the purchases of their vehicles with cryptocurrency. So, with that said, what exactly are the risks and benefits of investing your money in cryptocurrency?
Risk: Volatility
Volatility in cryptocurrency is how much the price of a crypto coin/token will change in a period. Not all cryptocurrencies are equal when it comes to volatility. For example, Bitcoin is a cryptocurrency that has been seen as relatively “safe” when it comes to cryptocurrency. On the other hand, a coin like Dogecoin has been known to be extremely volatile. This means that the price of one Dogecoin can vary dramatically, making it much more of a risk when it comes to investing in cryptocurrency.
Benefit: Make a lot of money quickly
When it comes to cryptocurrency, a lot of money can be made in a short time. For example, in the beginning of 2021, Dogecoin saw a huge increase in value. Many investors were able to increase their investment by a substantial amount. In fact, from January to May of that year, Dogecoin surged 12,000%. This means that if you were able to get in early on this cryptocurrency, then you were able to make a substantial amount of money. To return this type of profit, typically, you would have to invest in a cryptocurrency that carries a higher volatility.
Risk: Not insured
Unlike investing in the stock market, investing in cryptocurrency is not insured. This means that if something should happen to your investment, there is nothing protecting you. The responsibility of protecting your investments falls completely on you. If, for example, you forget the password to your crypto wallet and can no longer access it, then you have more than likely lost whatever cryptocurrency/money was inside that wallet.
Benefit: Protection against inflation
Inflation, especially in America, is an ever-present problem. However, cryptocurrency can offer some protection when it comes to inflation. This is because most of the blue-chip cryptocurrencies, such as Bitcoin, have a finite supply of coins. This acts like other finite resources, such as gold, because when there is a demand and a limited supply, the price for that supply is going to go up. This is not the case with the USD. The value of USD goes down because more is being created all the time. This means that investing in cryptocurrency could protect you from inflation in the future.
Risk: Not accepted many places
Unlike cash and most major credit cards, you cannot use cryptocurrency to make purchases at most businesses. This can be a big inconvenience, especially if all your money is tied up into cryptocurrency. While some major companies are allowing the use of cryptocurrency to make purchases, such as Whole Foods and PayPal, many are still not there yet. If you are traveling, and have most of your money in cryptocurrency, then carrying cash would be strongly suggested.
Benefit: You own your cryptocurrency
If you have your cryptocurrency in an actual digital crypto wallet, then you legitimately own your cryptocurrency. This means that you have total control of your assets and are not at the mercy of a bank. You are free to sell your cryptocurrency if you choose to, or you can simply give it to anyone you choose, because you own it. You are also less vulnerable to many government regulations or policies that would affect you if you kept all your money in a bank.
Risk: If it’s lost, then it’s gone
If you lose access to your cryptocurrency, then it is gone forever. One of the benefits of cryptocurrency can also become a risk. Most cryptocurrency wallets are very safe and require multiple verification processes in order to access your wallet. The wallets are so safe in fact, that if for some reason you forget the credentials necessary to access your wallet, then you have technically lost whatever money was in that wallet. For this reason, you should make sure to keep your password(s) somewhere safe and accessible just in case you forget.
Benefit: Passively earned income
I am sure you have heard the term “passive income.” This means that you can earn an income without really doing anything at all. Cryptocurrency can act as a passive revenue stream. There are websites where you can stake your cryptocurrency and you will be paid and can be paid a percentage of that stake over a period of time. Also, just by simply investing in a cryptocurrency can create a passive income. For example, if you invest in a cryptocurrency, and the value increases over time, then you have just earned more money without actively working.
As mentioned previously, cryptocurrencies have a wide variety of risks and benefits associated with them. Some cryptocurrencies carry less risk than others. However, just as with any other investment, the higher the risk usually results in a higher reward. Investing in anything can be a tricky proposition, so it is best to educate yourself as much as possible before you commit anything to any kind of investment.
Unless you have been living under a rock for the past two years, you have probably heard of cryptocurrency. Cryptocurrency has taken several forms such as Bitcoin, Ethereum and Dogecoin, just to name a few. Cryptocurrency can be used for a variety of purchases such as Non-Fungible Tokens (NFT). Cryptocurrency can also be used for goods and services. For example, Tesla allows the purchases of their vehicles with cryptocurrency. So, with that said, what exactly are the risks and benefits of investing your money in cryptocurrency?
Risk: Volatility
Volatility in cryptocurrency is how much the price of a crypto coin/token will change in a period. Not all cryptocurrencies are equal when it comes to volatility. For example, Bitcoin is a cryptocurrency that has been seen as relatively “safe” when it comes to cryptocurrency. On the other hand, a coin like Dogecoin has been known to be extremely volatile. This means that the price of one Dogecoin can vary dramatically, making it much more of a risk when it comes to investing in cryptocurrency.
Benefit: Make a lot of money quickly
When it comes to cryptocurrency, a lot of money can be made in a short time. For example, in the beginning of 2021, Dogecoin saw a huge increase in value. Many investors were able to increase their investment by a substantial amount. In fact, from January to May of that year, Dogecoin surged 12,000%. This means that if you were able to get in early on this cryptocurrency, then you were able to make a substantial amount of money. To return this type of profit, typically, you would have to invest in a cryptocurrency that carries a higher volatility.
Risk: Not insured
Unlike investing in the stock market, investing in cryptocurrency is not insured. This means that if something should happen to your investment, there is nothing protecting you. The responsibility of protecting your investments falls completely on you. If, for example, you forget the password to your crypto wallet and can no longer access it, then you have more than likely lost whatever cryptocurrency/money was inside that wallet.
Benefit: Protection against inflation
Inflation, especially in America, is an ever-present problem. However, cryptocurrency can offer some protection when it comes to inflation. This is because most of the blue-chip cryptocurrencies, such as Bitcoin, have a finite supply of coins. This acts like other finite resources, such as gold, because when there is a demand and a limited supply, the price for that supply is going to go up. This is not the case with the USD. The value of USD goes down because more is being created all the time. This means that investing in cryptocurrency could protect you from inflation in the future.
Risk: Not accepted many places
Unlike cash and most major credit cards, you cannot use cryptocurrency to make purchases at most businesses. This can be a big inconvenience, especially if all your money is tied up into cryptocurrency. While some major companies are allowing the use of cryptocurrency to make purchases, such as Whole Foods and PayPal, many are still not there yet. If you are traveling, and have most of your money in cryptocurrency, then carrying cash would be strongly suggested.
Benefit: You own your cryptocurrency
If you have your cryptocurrency in an actual digital crypto wallet, then you legitimately own your cryptocurrency. This means that you have total control of your assets and are not at the mercy of a bank. You are free to sell your cryptocurrency if you choose to, or you can simply give it to anyone you choose, because you own it. You are also less vulnerable to many government regulations or policies that would affect you if you kept all your money in a bank.
Risk: If it’s lost, then it’s gone
If you lose access to your cryptocurrency, then it is gone forever. One of the benefits of cryptocurrency can also become a risk. Most cryptocurrency wallets are very safe and require multiple verification processes in order to access your wallet. The wallets are so safe in fact, that if for some reason you forget the credentials necessary to access your wallet, then you have technically lost whatever money was in that wallet. For this reason, you should make sure to keep your password(s) somewhere safe and accessible just in case you forget.
Benefit: Passively earned income
I am sure you have heard the term “passive income.” This means that you can earn an income without really doing anything at all. Cryptocurrency can act as a passive revenue stream. There are websites where you can stake your cryptocurrency and you will be paid and can be paid a percentage of that stake over a period of time. Also, just by simply investing in a cryptocurrency can create a passive income. For example, if you invest in a cryptocurrency, and the value increases over time, then you have just earned more money without actively working.
As mentioned previously, cryptocurrencies have a wide variety of risks and benefits associated with them. Some cryptocurrencies carry less risk than others. However, just as with any other investment, the higher the risk usually results in a higher reward. Investing in anything can be a tricky proposition, so it is best to educate yourself as much as possible before you commit anything to any kind of investment.
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