Investing in cryptocurrencies doesn’t come without risks, but neither does any other investment type. This rundown of the advantages and disadvantages of investing in cryptocurrency (which is by no means an exhaustive list) can help you better understand the risks and rewards.
How to invest in cryptocurrency: If you want to invest in cryptocurrency, and not just buy, sell, or trade, then you have a few options. New investors can choose between the GBTC trust sold on the stock market, a cryptocurrency IRA, or an exchange-broker-wallet hybrid like Coinbase/GDAX which allows customers to buy/sell actual cryptocurrency. Each option has its pros and cons, but notably, only an exchange-broker like Coinbase/GDAX allows one to trade and invest directly in cryptocurrency.
The Pros and Cons of Investing in Cryptocurrency
CONS:
- The cryptocurrency market has been very volatile since its inception. The price of Bitcoin can swing up or down hundreds of dollars in a day, and the price more than quadrupled in 2017.
- Thousands or miners and developers are mining across the globe.
- Bitcoin has undergone more than 10 major bubbles since inceptions and getting more stable.
- The Federal Bureau of Investigation (FBI) owns 1.5% of the world’s Bitcoins.
- The number of merchants accepting Bitcoins grew from 36,000 to 1,82,000 in 2017.
- Even if cryptocurrency is a good long-term bet, we don’t know if Bitcoin (or any of the top coins) will be the one that sticks around. This is even more true for the countless less popular coins with smaller market caps. Thus, there is a risk in betting on a given coin even if cryptocurrency is here to stay and the best prices are ahead.
- Currently, cryptocurrency trading is legal in the U.S., Russia, and China (although that could change), and the U.S. and Russia have been fairly friendly toward cryptocurrency but keep in mind governments can influence the price (even when all other signals are good).
- The attitude of crypto investors seems to change with the wind. A bit of bad news in term of regulations tends to send prices into a tailspin one day, but the same news another day might have no effect.
PROS:
- There is a significant upside to investing in cryptocurrency. That is, the cryptocurrency market is still young, and the most optimistic of investors are projecting future prices that would make buying any of the major cryptocurrencies (even at the height of 2017) a good bet.
- It doesn’t look like cryptocurrency is going anywhere soon. While currently we mostly use fiat currencies to conduct monetary transactions. People understand that a dollar has value, but yet not everyone understands what cryptocurrencies are and/or how they work. Nevertheless, some big businesses have already started to accept Bitcoin as a form of payment, taking it into a more mainstream realm. It’s likely that cryptocurrency will become a common form of payment in the future, making it a logical long-term investment.
- Decentralized – Not controlled by any Country, Government, Bank, Company or Individual. Corruption free and cannot be manipulated.
- Not legal in many countries yet
- -Mass adoption still long way away
- -Difficult to understand and even difficult to operate
- -51% attack on network may cause bitcoin to get manipulated
