The Problem With Cryptocurrency as an Investment
If you’re buying and holding cryptocurrency for the future, you’re actively preventing the currency from being exchanged. If everyone did this, the currency would hold no value whatsoever.
The Strengths of Cryptocurrency
- Potential upside. At the end of 2017, Bitcoin exploded in price, resulting in a massive surge in interest in cryptocurrency. Investors and speculators have seen this burst of good luck as a sign of things to come, and have been hopeful for a similar price explosion ever since. If such an explosion does unfold, however unlikely, it could turn even a modest investment into a fortune.
- Independence. Cryptocurrencies seem to operate according to their own intrinsic environments. They aren’t subject to follow the whims of the stock market, real estate market, or any other common market force. This insulates them and could make them a good complement to your portfolio.
- Security. A major advantage of cryptocurrency is its potential for anonymity and security. With the central LEDGER and cryptographic sequencing, all your transactions are practically guaranteed to be impenetrable and immutable.
The Dangers of Cryptocurrency
- Many currencies with hard-to-discern distinctions. There are dozens of major cryptocurrencies in circulation and hundreds of distinct currencies. What are the differences? This isn’t like evaluating two different types of mattresses, with distinct materials and subjective “feels.” Each currency is designed with a different foundation and is maintained in a different way. One of the goals of crypto is to come up with an international, universal standard; so how can you tell which currency, specifically, is going to achieve this? Most of these coins will die out, so your decision is very important.
- Uncertainty and volatility. Cryptocurrency is fundamentally new, so we don’t have much historical data to help us understand how it might grow or evolve in the future. Accordingly, crypto prices have been incredibly volatile. For some people, that volatility is a benefit (it’s the necessary flipside of huge potential gains). However, it’s not for everybody.
- Technical complexity and liquidity. Buying and holding cryptocurrency isn’t quite as straightforward as holding stocks, unless you’re using a third-party wallet, which may have problems of its own. That technical complexity limits the number of people buying and selling the currency, meaning your investment isn’t nearly as liquid as the other holdings in your portfolio.
- Security. We mentioned security as an advantage of cryptocurrency, so what is it doing here? Well, while cryptocurrency transactions are generally considered safe and no one can access your wallet without your password, there are a great deal of cryptocurrency schemes out there—including high-level Ponzi schemes and scams meant to swindle you out of your digital currency. Even seasoned investors are not exempt from these, and they could easily ruin your investment prospects.
overall portfolio.