The Advantages and Disadvantages of Investing in Cryptocurrencies such as Bitcoin, Litecoin, Ethereum, and Other Alternative Coins
Investing in cryptocurrencies such as Bitcoin, Litecoin, and Ethereum carries a high level of risk. The advantages and disadvantages of investing in bitcoin are discussed.
Investing in cryptocurrencies may or may not be a wise decision. That is true for cryptocurrency in general, and it is also true for you as an individual.
Because cryptocurrency is still relatively new and the market has a long history of volatility, there is no definitive answer as to whether or not it is wise to invest in it. With this in mind, we'll go through some advantages and disadvantages as well as some friendly (but not professional) advice.
There are several ways to invest in cryptocurrency New investors can choose from the GBTC trust, a cryptocurrency IRA (which we won't recommend until we've reviewed), a user-friendly solution like Cash App or Robinhood, or an exchange-broker-wallet hybrid like Coinbase/Coinbase Pro, which allows customers to buy, sell, and store a variety of cryptocurrencies. Each method has advantages and disadvantages, but only an exchange-broker such as Coinbase/Coinbase Pro allows you to trade and invest in bitcoin directly. Learn more about cryptocurrencies and how to invest in them.
Please note that, despite the foregoing, this site does not provide professional legal, investment, or tax advice. With that in mind, the best advice is to expect to lose every cent you invest in cryptocurrencies; it's unlikely, but it might happen, and you'll need to enter the market with some resilience. If you wish to take it easy with cryptocurrency investing after that warning, Consider investing no more than 1% of your investable cash in GBTC or Coinbase to get your feet wet. Start with the basics and work your way up to further choices such as online bitcoin exchanges or even cryptocurrency mining. Consider dollar-cost averaging as well (taking your funds for the year and buying weekly or monthly on lows). This will assist you in purchasing the average price of a market that is otherwise erratic. You can certainly jump right in, but if you time the market incorrectly, you may find yourself on an extremely tense roller coaster trip.
TIP: The coins with the lowest risk are usually those that have been around the longest and have the biggest market valuation and volume. A list of cryptocurrencies can be found here. Anything that isn't Bitcoin, Litecoin, or Ethereum is inherently riskier. Bitcoin is currently the most popular coin in terms of longevity, market capitalization, and volume. It is also, unsurprisingly, the most expensive.
Before investing in bitcoin, there are various advantages and disadvantages to consider. The following are some of the most important characteristics of cryptocurrency investing:
CON: Since its debut, the cryptocurrency market has been extremely volatile. Bitcoin's price can fluctuate by hundreds of dollars every day, and it more than quadrupled in 2017. We've already seen one bubble and burst, in 2013, and bitcoin now appears to be in a conventional bubble in 2017. In fact, the psychology of bubbles is referenced in our header graphic. It's a reference to "the Minsky cycle," which might help you figure out how likely it is that we're in bubble territory. However, there are other other aspects to consider. If there hadn't been, the answer to whether or not to invest in bitcoin would have been a clear "no."
PRO: Investing in cryptocurrencies has a lot of advantages. That is, the cryptocurrency market is still in its infancy, and even the most bullish speculators are estimating future prices that would make buying any of the main cryptocurrencies a smart bet (even at the height of 2017). Regardless of what happens in the interim, if Bitcoin climbs to $6k, $7k, $15k, or $600K+ as some prominent investors predict, $4.2K (about where it trades in the second week of September 2017) will appear like a terrific price.
CON: Even if cryptocurrency is an excellent long-term investment, we don't know if Bitcoin (or any of the other top coins) will survive. This is especially true for the innumerable lesser-known currencies with lower market capitalizations. As a result, even if cryptocurrency is here to stay and the best prices are ahead, there is a risk in investing on a certain coin.
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PRO**: Even if cryptocurrency is in a bubble, it is possible that it may become an important medium of trade and store of value in the future. If today's price is less than the maximum price we'll ever see. As a result, it's a solid long-term investment. Meanwhile, bitcoin is a high-risk investment for day traders (but potentially rewarding bet).
CON: Those with a poor risk tolerance face an additional challenge; they are more likely to develop weak knees and sell at a loss if the market corrects or slumps. Unless you waited 17 years after purchasing Microsoft at the peak of the dot-com bubble, it seemed like the end of the world. You realised your profit 17 years later, and it was a sizable profit. Microsoft was never a bad investment; those who bought at the peak of the bubble saw it as such when the bubble burst. If Bitcoin behaves like the Microsoft of cryptocurrency, an investor must be willing to accept a loss or wait on a loss for a period of time if the market falls (if this is a major bubble). That necessitates a stable mindset as well as readily available cash. To put it another way, there are psychological as well as economic variables to consider.
PRO: Because the market is volatile, you can often buy high and sell high if you time your buys and sells appropriately. There's a lot of money to be made here.
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CON**: Buying GBTC, which trades at a premium, is the only way to trade cryptocurrencies on the stock market. Aside from the stock market, the simplest option for a novice to buy cryptocurrency is through a business like Coinbase, which charges a premium (far lower than GBTC's, but still a premium). Meanwhile, the internet's open exchanges have the lowest fees. Their risk and complexity are higher than GBTC or Coinbase, despite their modest fees. All trading options have costs that eat into any possible gains, such as premiums and fees, as well as locating a seller. Calculating these can be difficult.
TIP: If we are in a bubble, and the bubble bursts, cryptocurrency (especially the large ones that are still standing) becomes a viable bet. The current possibly high price is the only cause for extreme caution. If the price drops to 2015 levels, the number of professionals will rise. Similarly, if the government embraces bitcoin in the coming year, it will help to add to the list of benefits. It's dangerous because of the unknowns, high price, and volatile market, but there are many of reasons to be thrilled, especially in the long run.
