If someone told you ten years ago that they will be holding a significant chunk of their investment portfolio in a digital currency like cryptocurrency, you might have probably laughed at them. Fast forward to today, and you might seem like you are lagging behind the rest of the world if you have never traded a single Bitcoin, Ethereum, or Dogecoin.
Whether you are skeptical about cryptocurrency, you have to still admit that it exists pretty much everywhere now, and it is not something exclusively for “nerds” or traders. In fact, a growing number of traditional businesses are integrating cryptocurrency into their platforms in some form.
The question is, “Is digital currency a good investment?”
The rise of Bitcoin, Ethereum, Litecoin, and a host of other cryptocurrencies has led to a complete change in perspective regarding this new asset class. It is definitely possible to become filthy rich by investing in cryptocurrency. Many early investors have already become wealthier because cryptocurrency prices have soared in recent years, so there is no speculation about the possibility of building wealth.
However, does that automatically mean that digital currency is a good investment? Not entirely.
Provided that the asset you invest in blows up and becomes massive, you can become wealthy overnight by investing in cryptocurrency. However, you could lose all the money you invest in cryptocurrencies just as easily.
We will take a closer look at what you need to know about investing in digital currencies like cryptocurrency to help you determine whether digital currency is a good investment for you to consider.
Is Cryptocurrency Safe?
Cryptocurrencies rely on a distributed ledger system called blockchain technology. It is a database that keeps track of all the transactions in the particular peer-to-peer network while maintaining several copies of the database throughout the network that are stored by multiple entities on the network simultaneously.
The transactions on the blockchain network are done by all the peers on the network, ensuring that there is no centralized storage or authority regulating the financial transactions. Rather, it becomes an entirely peer-to-peer-based or decentralized currency system.
Several qualities about this system have made it popular enough for the world to gradually accept that cryptocurrencies are here to stay. However, there are a few risks associated with cryptocurrencies that don’t make them entirely safe.
Cryptocurrency enthusiasts are eager for the new decentralized store of value to become more mainstream for day-to-day transactions. While there is increasing adoption of cryptocurrencies by many businesses worldwide, regulations by governments can impact them. Since cryptocurrencies derive value based on demand and supply, they are innately volatile.
Additionally, cryptocurrency exchanges, like stock exchanges for the cryptocurrency world, are vulnerable to being hacked and becoming targets of other criminal activity. Security breaches in the past have led to many earlier investors losing their digital currencies.
However, the approach to safely store cryptocurrencies and the general practices for safe storage and preventing hacks is becoming more commonplace. Offline “cold storage” options like paper or hardware wallets are helping people store their digital currencies safely, along with improving security protocols within cryptocurrency exchanges. Digital currencies are becoming safer each day.
Cryptocurrency Adoption
Digital currencies are becoming more mainstream despite the initial challenges and inherent risks, and they are becoming consistently stronger. The global blockchain industry is developing faster now, and a much-needed financial infrastructure is being built. Increasing adoption has also led to institutional-grade custodian services entering the fray, making cryptocurrencies more secure.
Cryptocurrency futures markets are being created now, and many companies worldwide have gained exposure to the burgeoning sector. PayPal and Square are two massive financial giants that have made it easier to trade cryptocurrencies through their platforms. Other companies have even invested billions in cryptocurrencies. Considering the large-scale adoption of cryptocurrencies, you could consider them safe as an asset class because it is here to stay.
Still, does that make it a good long-term investment?
In A Nutshell – Are Cryptocurrencies A Good Long-Term Investment?
The success of any cryptocurrency project is not assured. However, early investors in successful cryptocurrency projects have already significantly profited through them. Widespread adoption is the key for digital currencies to be considered a long-term success, and they have not been around for long enough to determine that yet.
Bitcoin, for instance, is the world’s first and most popular cryptocurrency. Bitcoin bulls believe that it is the cryptocurrency to buy, and it will gain value over the long term because of the limited supply. Central banks control fiat currencies like the US dollar, and these authorities can choose to introduce more units of the currency into circulation. The supply of Bitcoin is capped at just under 21 million coins, ensuring that there will be no coins that would dilute the value of existing Bitcoin.
Bitcoin is largely seen as a store of value like gold. Provided that it becomes extensively used as an alternative to traditional currency as a means to exchange goods and services, it can become a global currency.
There might be a long way to go before cryptocurrencies become as integral to our lives as traditional currencies, but the possibility undoubtedly exists. Owning some cryptocurrency right now can be a good way to diversify your portfolio into a new and potentially lucrative asset class. If you believe that cryptocurrency use will become more common over the years, it will make sense for you to invest in them right now.
However, you should not blindly invest in every cryptocurrency out there. Ensure that you conduct your due diligence on every cryptocurrency you are considering right now. Determine why it might be able to stand the test of time.
If you find owning cryptocurrencies too risky, you could still profit from their price movements by investing in companies with cryptocurrency-related business operations. Investing in these cryptocurrency companies might be profitable, but they might not present the same upside potential as directly owning cryptocurrency.
We hope that this post on whether digital currency is a good investment helps you make a more well-informed decision about investing in this space. If you liked reading this, there is plenty more for you to learn. Keep following us for more useful articles on digital currencies and the cryptocurrency world.
