Cryptocurrency has been in its boom for the past few months. This rage has only surged, especially after the public releases made by several corporate giants like Tesla, BMW, PayPal, Microsoft, Expedia, Wikipedia, etc., to accept Bitcoin as a payment form. You might not know that Square, an American payments company, has recently purchased Bitcoins worth a whopping $50 million. This mass institutional acceptance, limited supply, high liquidity, and lower inflation risk have made Cryptocurrency as a new alternative asset class one of the best investments in today’s date.
However, the most common question that pops in the mind of newbies is – ‘Is it safe to invest in cryptocurrencies like Bitcoin, Ethereum, Litecoin, etc.? Today, we have addressed all the risks and rewards you need to know before beginning your crypto investment journey.
Let’s have a look.
Risks in Cryptocurrency Investments
There are three major risks in the cryptocurrency realm; however, all of them are beatable provided that you adopt certain measures.
Volatile & Changing Market
Almost all cryptocurrencies leave behind a wild trail on the price charts. The value keeps on fluctuating. Sometimes it is a boom, and sometimes it is just a bad storm. Have a look at the below graph that illustrates the topsy-turvy journey of Bitcoin’s price from October 2017 to March 2021:
As of November 7, 2018, the price of 1 BTC was equivalent to $6,425.92. But If you would have purchased 1 BTC as of December 19, 2017, it would have cost you 18984.77. In just one year, the value observed a dip by $12,558.85. But fast forward to March 15, 2021, 1 BTC touched the value of $60197.90. No asset to date has shown the volatility this extreme.
This volatility can have a severe impact on your returns. Hence, it is recommended to keep a closer look at the market’s performances of the cryptocurrency you wish to invest in. One should make small investments in the beginning and level up the game as the understanding develops.
Cryptocurrency is a digital asset that makes it vulnerable to online attacks and theft attempts organized by hackers. It is purchased online, sold online, and stored online with cryptocurrency exchanges like Binance, Coinbase, Kucoin, etc. To make the matter worse, investors are not allowed with options to recover the coins that are lost or stolen.
Hence it is recommended to store your cryptocurrencies in a cold wallet. A cold wallet or a hardware wallet is a physical storage solution. Unlike exchanges, it does not store your assets online. Your security keys and codes stay in this small and compact physical device.
Some of the most popular and reliable cold-wallet are:
It is also recommended to use anti-malware software, which is updated regularly.
Almost all cryptocurrencies are operating without any major legislation directly regulating them. The government does not have any power to control the economics of cryptocurrencies. The regulatory greyness makes it difficult for the investors to collect information on valid tax treatments and the records needed to be maintained.
However, the good news is that the regulators have started catching up. Many jurisdictions have been releasing research papers and standards to enforce new regulations to provide a legal shadow to cryptocurrencies.
Rewards in Cryptocurrency Investments
The rewards are extractable from making cryptocurrency investments outweigh the risks associated with it. Let’s have a look at the top three economic benefits that you can inherit.
Despite the volatile nature of cryptocurrencies, they have always followed an upward trend as time passes. To better understand, look at the market growth performance for Bitcoin, Ethereum, and Litecoin illustrated below in the last year.
As you can see in all the above three graphs, the price follows a high road. There are fluctuations (which are sometimes sharp), but the prices bounce back again at an elevated value. Hence, making investments in cryptocurrencies could be fruitful provided that you perform comprehensive research and market analysis of the coins you wish to go with.
You can check out our article – 5 Cryptocurrencies That Will Explode in 2021
Unlike the traditional banking architecture where your funds are in the control of the organizations, nothing like this happens in the world of cryptocurrency. You get more control over your digital investments to manage the crypto portfolio without any mandatory intervention of a third party like a bank or government.
Liberty from Banking Fees
It is sometimes frustrating to pay different kinds of additional charges under the traditional banking architecture like account maintenance, minimum balance fees, overdraft charges, returned deposit fees, and so on. But on the contrary, Bitcoin transactions work in a different manner. you are required to pay only trading fees and withdrawal fees while investing in cryptocurrencies by binance or Top 10 Crypto Exchanges or The Smart Contract fees with other Decentralized Exchanges. The liberty from banking fees is one of the best rewards you can expect while adding this digital asset into your investment bucket.
Following are some interesting stats you need to know (At the time of writing this article)
- Bitcoin circulating supply: 18,675,281 BTC
- Ethereum circulating supply: 115,360,489 ETH
- Litecoin circulating supply: 66,752,415 LTC
- Chainlink circulating supply: 417,509,556 LINK
The scarcity of cryptocurrencies adds to its appeal for the millions of investors out there.
Cryptocurrencies are equipped with a shield that provides protection against inflation vibes. This inflation-proof nature exists because the circulating supply is limited, and cryptocurrencies are not bound to the same political and economic stress as experienced by the national central banks all across the globe. You might not know, but the central banks have an obligation to steer the economy to the right path during times of stress by purchasing government bonds. However, since the government exercises no control over cryptocurrencies, it provides the investors with an advantage to stay away from the deep dips.
It is not wrong to say that cryptocurrency investment is the new black in the market. Many of them have emerged as a powerful investment class that helps the investors to become financially competitive without worrying about any third-party interference. As far as the risks and rewards go, the rewards are on the heavier side, and the risks are also avoidable. However, according to the opinions of the experts, it is always good to conduct a 360-degree review and analysis of the cryptocurrency you are planning to invest in. Also, not just cryptocurrency, but it is also recommended to study the exchange that you are going to use to initiate our investment journey. There are many exchanges out there; however, only some of them are reliable and have established goodwill in the market.