It is possible to profit by investing in cryptocurrency, but you could also lose all your money.
How can both of these things be true at the same time?
Like most investments, cryptocurrency does come with a lot of different risks, but also some huge potential rewards.
You can invest in cryptocurrency if you want to gain direct exposure to the demand for digital currency and the projects or businesses that are facilitated.
There are several publicly traded companies that can give limited exposure to the cryptocurrency market, including Square, PayPal, MicroStrategy, or CME Group.
These investments, however, don’t come with the same focus on a cryptocurrency or blockchain project as investing directly in a crypto asset like bitcoin.
Is cryptocurrency safe?
There are some risks present in the crypto market that are not as common in more traditional financial markets, such as those for stocks and bonds.
Cryptocurrency exchanges have been victims of hacks and other criminal activity.
These breaches in security have led to some sizeable losses to some unlucky investors who lost their digital currency.
There are also common frauds and scams in the crypto industry. There are people who promise investors huge returns who then turn out to be unable to fulfill those promises, as what they peddle is not actually legitimate blockchain projects. Investors who fall for this hype can suffer some big losses when these projects inevitably fail.
It’s also not as easy to store cryptocurrencies as it is to store bonds or stocks. There are exchanges like Coinbase which make it easy to buy and sell crypto assets, such as bitcoin and Ethereum, but a lot of people don’t like keeping their digital assets on exchanges due to the risk of hacks, cyberattacks, and theft.
Instead, some people prefer offline storage, such a paper wallet or hardware. Cold storage, as this is known, has it own set of risks and challenges, such as the risk of losing your private keys, which would make it impossible to get at your cryptocurrency.
There is also a risk that the crypto project that you decide to invest in will not succeed. There are thousands of blockchain projects and a lot of competition. There’s a risk that regulators could also crackdown on the whole crypto industry if more governments start to view this kind of currency as a threat, rather than technological innovation.
It’s also important to understand that cryptocurrencies and blockchain are both cutting-edge technologies. This of course makes them exciting, but it does also increase the risk for investors, as a lot of the tech involved is still being developed. A lot of it is not proven in real-world scenarios.
Buying cryptocurrency is still an early-stage investment and investors should expect outcomes similar to venture capital. The vast majority of crypto projects will fail and end up worthless. Only a small number will succeed, and it’s unclear yet if the big wins that are possible can offset the losses.
While this is true, the blockchain industry is growing stronger all the time. Financial infrastructure is being built, such as institutional-grade custody services and futures markets, and this is giving investors some tools to manage and guard their assets. Some large financial companies, like Square and PayPal are also making it easier to buy and sell cryptocurrency through their platforms.
Some major corporations have invested hundreds of millions of dollars in digital assets.
Tesla, for example, bought $1.5billion of bitcoin earlier this year and made plans to accept bitcoin as payment for their cars. These companies obviously see the potential, as do more individual investors.
Is crypto a good long-term investment?
Whether crypto assets will actually pay off for individual investors can be determined by whether or not they achieve wide-scale adoption.
Bitcoin is increasingly being seen as an investment similar to investing in gold.
Unlike flat currencies, such as the Japanese yen or the US dollar, which can apparently be printed at the will of politicians, bitcoin has a maximum supply of just under 21 million coins.
A lot of investors see bitcoin as a scarce asset that could increase in value as flat currencies decrease.
Others think that bitcoin could be used extensively as a digital form of cash, with some even predicted it could become the first global currency.
Ethereum wants to serve as a global computing platform. It acts as a launchpad for decentralized applications, known as dapps, which are open source and not controlled by any one organization.
Ethereum allows smart contracts to be used, which have their terms written directly into code and can be automatically executed very easily.
These technologies have the potential to disrupt massive industries, including real estate and banking, or perhaps even create completely new markets.
If these aims can be achieved, then investors who buy their tokens today are likely to be greatly rewarded in the coming years.
However, there are many other projects that are competing with these leaders of cryptocurrency, so their success is by no means guaranteed.
Are there better investments than cryptocurrency?
There are several other ways to earn a profit from blockchain technology other than investing in cryptocurrency directly.
One good option is buying stocks in companies that have rapidly adopted this technology.
Square and PayPal are offering cryptocurrency services to their users, and both of these leaders in digital payments are positioned well to benefit from a surge in the use of bitcoin and other cryptocurrencies.
Investing in CME Group, which operates a large bitcoin futures exchange is another smart way to profit from the rise of trading of digital assets.
Which of these options is best for you can only be decided by yourself.
This article should have given you some key factors to start you off in the process of considering what the correct choice is for your personal investment portfolio.
Remember: Investing in cryptocurrency and related tech is highly speculative and highly risky. You should never invest more than you can afford to lose.
(Disclaimer: This content is a partnered post. This material is provided as news and general information. It should not be construed as an endorsement of any investment service. The opinions expressed are the personal views and experience of the author, and no recommendation is made.)