Cryptocurrency: Why You Should Consider Investing
Last updated on January 24th, 2023 at 11:25 am
Cryptocurrency is the future of money. Investing in cryptocurrency could potentially be one of the best decisions you ever make.
Investing in cryptocurrency can be a great way to increase your financial portfolio. With more and more investors turning to cryptocurrency as an option for maintaining their wealth, the potential for success is there. This is in large part because of the debasement of fiat currencies and the increase in crypto adoption across the globe.
Cryptocurrency investing provides a great opportunity for portfolio diversification and generating high returns. Crypto is largely uncorrelated with other asset classes, so it doesn’t move in tandem with traditional markets. Crypto has a low entry barrier, high liquidity and low transaction fees making it a viable option for investors.
There are several key benefits to investing in cryptocurrency. These include anonymity, decentralization, borderless transactions, liquidity and self-custody.
Moreover, when it comes to investing in crypto, you need to do your own research so you can be well-informed and have a better understanding of the projects you are considering investing in.
In this article, we’ll discuss cryptocurrency investment opportunities, strategies for cryptocurrency investing and the associated risks. We’ll also talk about some good ideas for those of you just beginning to dip your toes in the crypto waters.
Let’s dive into this topic and help you decide if you want to take the plunge.
- Benefits of Investing in Cryptocurrency
- Top 10 Cryptos By Marketcap
- Project Evaluation & Identifying Investment Opportunities
- Cryptocurrency Investing Risks
- Bringing It All Together
- Frequently Asked Questions
Before investing in cryptocurrency, remember, this is NOT financial advice, I am NOT a financial advisor. You need to do your own research (DYOR) before investing and don’t invest money you can’t afford to lose. The results that I have experienced does NOT guarantee you will have the same outcome.
Benefits of Investing in Cryptocurrency
While not everyone agrees that investing in cryptocurrency is a good option, the potential benefits can not be denied.
However, where there are benefits, there are risks. After all this is a burgeoning asset class.
Not to mention, because it is new and it operates independently from traditional finance (TradFi). This is the system you likely use daily, such as your local bank. But it also includes the Federal Reserve (The Fed) and everything that they bring to the economic table.
However, I would argue that given everything happening in the world, the potential benefits certainly outweigh the risks… or at least, justify the risks.
Some of these benefits include freedom. Crypto provides you the means to not only invest when and where you want, but to use your money without any third-party interference or restrictions.
Let’s be honest, yes, your local bank can be very helpful. They can assist you accomplishing many things you need to do in order to function in our economy.
But make no mistake, they can always say no.
They can deny a loan and even restrict you from sending your hard earned money to various companies and to family in other countries. Not to mention, that ultimately, the money you have in the bank is not really yours, it is merely an IOU.
I don’t want to get too far off track about banks… however, I did take the time to break down the advantages & disadvantages of the banking system vs cryptocurrency.
So, let’s keep this benefit thing going…
Investing in cryptocurrency can offer the opportunity of passive income in addition to the potential for amazing growth.
Looking for an alternative to traditional (TradFi) investing, then read on because cryptocurrency may be the right choice for you.
Potential Crypto Investment Opportunities
If you take the time to look, there exists an almost exhaustive assemblage of opportunities inside of the cryptocurrency space.
One of the biggest areas of opportunity that I have focused on in the past was the ability to earn a passive income from the space. These potential income opportunities included trading, mining or staking.
There are so many other benefits that are equally as important.
These include the anonymity and decentralized nature crypto provides. Honestly, even more than that, there is the ability to be your own bank and be the only person in control of your funds.
Let’s take a quick look at some of these aspects.
Firstly, cryptocurrency investments provide a certain level of anonymity. The level of anonymity varies depending on the type of cryptocurrency asset you are using and how you’ve acquired them.
For example, if you use a centralized crypto exchange, you are often required to provide KYC information in order to be able to buy, sell, trade and withdraw. So, any funds you move to your self-custody wallet can be traced back to you.
Using a centralized cryptocurrency exchange can be a great way for someone new to the space to begin. I’ve dedicated an entire post to learning more about cryptocurrency exchanges that can help.
Moreover, some cryptos provide more privacy than others.
Bitcoin for example is an open ledger. This means that anyone can look and see all of the wallet balances as well as the transactions on the network. This is considered pseudonymous.
So basically, nobody knows your BTC address unless you give it to them or it is connected to you via a centralized exchange.
However, there are crypto assets that provide complete anonymity. These cryptos are known as privacy coins.
Decentralization & Borderless Transactions
Secondly, cryptocurrency investments are decentralized and borderless. This means that cryptocurrency investments are not tied to any one country or economy, but instead move freely across international boundaries.
This makes cryptocurrency investments attractive for global investors who can take advantage of the potential gains from the cryptocurrency markets around the world.
But more than that, this intrinsic nature of crypto assets give users freedom. Currently, governments across the globe are developing or have deployed, Central Bank Digital Currencies (CBDC).
These digital assets are the antithesis of cryptocurrency.
CBDCs are centralized and issued by various Central Banks. In my opinion, these will eventually be used to monitor and attempt control of the population. We can already see this happening with the digital Yuan in China.
The move to this type of digital currency, as well as the destruction of physical forms of fiat currency, is funded and supported by NGOs (Non Governmental Organizations) like the International Monetary Fund (IMF).
The nature of these centralized assets will prevent any personal, private level of control. You will not be able to use a CBDC as you wish, nor will you be able to make cross-border payments without permission.
Not to mention a CBDC will be completely programmable. Thus allowing the Central Bank that controls the CBDC the ability to influence your behavior by coercing you via your own money supply.
So in contrast, by using a decentralized cryptocurrency like Bitcoin, you are in complete control.
This idea can be taken one step further with the use of a privacy coin such as Monero. When you use a privacy coin to complete a transaction, you not only have complete control, but complete anonymity.
Top 10 Cryptos By Marketcap
Frankly, liquidity is currently a bit of a double edged sword, but still worthy of note. When adequate market liquidity exists, cryptocurrency becomes one of the easiest assets to convert.
For those who don’t know, liquidity, in any asset, is necessary to facilitate things like buying, selling and converting an asset into something else. If there is not a large enough pool of buyers and sellers, it can be almost impossible to make your desired transactions.
Currently, the cryptocurrency market is small. As of this writing, the total crypto marketcap is just over $1 Trillion.
So, for those investing in coins and tokens with smaller marketcaps, there is limited liquidity in the space.
Cryptocurrency investments give you the ability to self-custody your assets. This is the ultimate freedom when it comes to your money.
This means that no one else has control of your cryptocurrency assets and the only person who can do anything with your cryptocurrency is you.
This is certainly not the case in our current banking system.
Self-custody gives you the ultimate feeling of autonomy. You can make this freedom and autonomy a reality by creating a cryptocurrency wallet.
In a nutshell, a crypto wallet gives you the ability to securely store and control your Private Keys, which in turn give you control of your cryptocurrency assets.
As with most things, not all cryptocurrency wallets are created the same. The most important distinction is whether or not the wallet is custodial or noncustodial.
In short, a custodial wallet is a wallet controlled by someone else, like a cryptocurrency exchange. A noncustodial wallet is one that is completely controlled by you.
This is a very important topic because it affects just about everything you do in the cryptocurrency space.
Because of this I have broken down the different types of cryptocurrency wallets, including their pros & cons… this is a must read!
And for those who are still not convinced they need a crypto wallet, I have tried to provide you more insight in this article.
By controlling all of your cryptocurrency transactions, without an intermediary, provides you the opportunity to experience true privacy and autonomy.
Project Evaluation & Identifying Investment Opportunities
In the cryptocurrency space, there are thousands of projects vying for attention and investment.
But how do you know which cryptocurrency project is worth investing in?
The key is to evaluate cryptocurrency projects carefully before investing any money. The process of doing this can be broken down into three main steps: research, analysis and decision making.
The first step is to do thorough research on the cryptocurrency project. This means reading all relevant documents such as whitepapers, roadmaps, case studies and even GitHub repositories (if available).
Going through this process is often referred to as DYOR – Do Your Own Research.
More aspects of this initial research include understanding the team behind the cryptocurrency project. This includes looking into the team’s track record and experience in the cryptocurrency, financial and development sectors.
Once you have done your research, it is time to analyze the cryptocurrency project. This involves understanding the cryptocurrency project’s potential tokenomics, use cases, as well as being sure to dive into any competition inside and outside of the space.
A good way to start out your analysis is to ask a question… what problem is this project trying to solve?
Once you determine if there is a need for what the project is looking to provide, then you can make your way into other areas, like the team’s experience in this area, the competition, is this business good on a macro economic scale and more.
Once you’ve completed all of your research, it’s time to make a decision.
This involves weighing up the cryptocurrency project’s pros and cons and ultimately determining if investing in this cryptocurrency project is worth the risk.
This is the part where staying objective is a must.
You’ll be considering the cryptocurrency project’s potential for returns, as well as its prospects for the future. This is the area where emotions can often play a factor in decision making.
Ultimately, cryptocurrency investments are a risky endeavor. This is true no matter how good the cryptocurrency project may appear to be or how much research you do.
By following these steps as part of your research into a project you can give yourself the best opportunity for investment success.
Strategies For Investing in Cryptocurrency
Let’s face it, investing in cryptocurrency can provide those looking to diversify their portfolios with an exciting opportunity.
But with that excitement comes risk. Every person’s ability to tolerate risk is different. This is called risk tolerance.
Understanding one’s risk tolerance is key when investing, especially in cryptocurrency, as it helps to determine a portfolio strategy that works for you.
Once you understand your tolerance for investment risk, as we mentioned a moment ago, investing in cryptocurrency requires a certain level of research and understanding of cryptocurrency markets.
This is especially true for beginner cryptocurrency investors. I have tried to help out with this by dedicating an entire article for beginners.
That said, here are some investment strategies that can help you mitigate risk and maximize your cryptocurrency investments.
Dollar Cost Averaging
In the cryptocurrency space, this is also sometimes referred to as Crypto Cost Averaging.
Dollar cost averaging is a strategy whereby investors purchase cryptocurrency at regular intervals, regardless of the cryptocurrency’s price.
This allows investors to benefit from buying cryptocurrency while prices are low and avoid investing large sums when cryptocurrency prices are high. Ultimately providing investors with a good, average investment price.
This is a particularly effective investment strategy for those who only have small amounts of money to invest over a longer period of time.
As a matter of fact, this strategy is so effective that I dedicated an entire article explaining how and where to do it.
Diversifying your investment portfolio is a good idea whether you’re investing in stocks, precious metals or crypto.
As a matter of fact, this is so important that I also invest in gold and other precious metals as part of my diversification process.
If you are looking to diversify beyond just crypto and being able to dollar cost averaging into gold, check out Acre Gold. You can invest as little as $50 per month and diversify into gold.
Currently, I avoid the stock market because The Fed has been manipulating stocks and bonds for decades.
Frankly, in my opinion this is going to destroy the market and hurt those who have all of the retirement funds solely invested here.
However, diversification also applies to investing in cryptos. Having your investment spread across different verticals is a good idea. This can be done by spreading investments out across different coins and projects within different areas of the space.
Many financial advisors caution investors not to allocate more than 10-15% of their portfolio to any single cryptocurrency.
I differ in that belief. In fact, I believe that all investors should have the majority of their investment in Bitcoin. I explain why here.
The bottom line regarding diversification is to reduce your risk as much as possible. To accomplish this consider diversifying not only your crypto investment portfolio, but also diversifying your portfolio outside of the cryptocurrency space.
Long-Term vs Short-Term Investments
Understanding the time horizon when it comes to any investment portfolio is important. This one strategy can be the prevailing factor in the security of your crypto investments.
However, because things seem to move faster in the cryptocurrency space, the importance of long-term vs short-term investing takes on a whole new meaning. This is why long-term cryptocurrency investing is seen as a safer approach in many cases. It helps to eliminate feelings of FOMO (Fear Of Missing Out).
Long-term cryptocurrency investing, in theory, focuses on cryptocurrency projects with potential for long-term growth. Thus providing investment stability and potential income well into the future.
Short-term cryptocurrency investing is often seen as more speculative and higher risk. This plays right into FOMO and can completely decimate your portfolio.
Short-term investing is often seen in investments that are made into cryptocurrencies that have small marketcaps. These are great for hoping that price volatility will bring with it some of the amazing gains that the crypto space is known for, but it can also reduce an investment to rubble.
While placing some money into higher risk assets can be worthwhile, the lion share of investments may be better suited to a long-term outlook. This means more stable cryptocurrency assets.
Best Ideas For The Beginner Investor
Generally speaking, cryptocurrency investors who are just starting out should focus on making small investments in cryptocurrency projects that have potential for long-term growth. This means cryptocurrency projects with solid teams, use cases and potential to become industry leaders.
As a matter of fact, this is so important for those just entering the space, that I’ve dedicated an entire article to the topic.
Whether you are a beginner to investing in cryptocurrency or not, it’s a good idea to never invest more than they can afford to lose.
Cryptocurrency Investing Risks
I think that we’ve established that investing in cryptocurrency can be a high-risk, high-reward endeavor.
From potential price volatility and liquidity issues to pending government regulations and self-custody challenges, cryptocurrency investing comes with many risks that must be weighed against its possible rewards.
However, by understanding these risks and taking the appropriate steps to manage them, cryptocurrency investors can capitalize on the potential benefits of investing in cryptocurrency.
Let’s look at some of these risks to help weigh them against any potential upside.
I have said this many times, Bitcoin and cryptocurrency are the most volatile assets on the planet. Because of this, volatility is one of the most significant risks in cryptocurrency investing.
If you’ve been around the space for any significant amount of time, you’ve watched the prices of all crypto assets spike or crash with little warning.
While this volatility can provide cryptocurrency traders with some amazing opportunities, for crypto investors experiencing both large gains and losses over a short amount of time can be quite stressful.
Understanding volatility as it relates to crypto and preparing for this risk is key to your cryptocurrency investing.
As I mentioned earlier, liquidity in the crypto space can be a double edged sword.
In order for liquidity to be a positive asset rather than a risk, there has to be plenty of money in the crypto asset you are trying to convert.
However, currently the cryptocurrency space has such a small marketcap, low liquidity increases the risk that cryptocurrency investors will face. This can prevent an investor from being able to liquidate an asset quickly if needed, thus leading to potential losses in value.
I remember when I first started out in the crypto space, it was often referred to as the wild west.
While the space itself has begun to self-regulate and shun the fraudsters, currently, this has only had a limited effect on the space.
However, the FTX bankruptcy has shown us that government officials are often complicit with the fraud happening in the space. This is something we reported on a few years ago, but just came to fruition in 2022 with the collapse of this exchange.
Given all of the ambiguity in regulation currently, government regulations can also be a significant risk for cryptocurrency investors. This is true not only for retail investors, but institutional investors as well.
Governments around the world, especially the U.S. government, are actively developing cryptocurrency regulations. These future regulations will significantly impact the cryptocurrency market and its prospects for future growth.
This makes it important for cryptocurrency investors to stay abreast of any changes in government regulation that might affect their investments.
Self Custody Challenges
Some of you reading this right now might be thinking that I’m losing my mind because self-custody was a benefit of crypto.
Believe me, I’m completely sane… but new technology almost always presents new challenges.
As we move further into the future, I believe that having complete control over your money is going to be more important than ever. But for most of us, we are used to having a trusted third party help us accomplish this.
Unfortunately, this current system is NOT a permissionless system.
We all need permission to be part of it and function within it. This is why, according to the World Bank, more than 1.4 billion people across the world are locked out of the banking system.
As I alluded to a moment ago, while cryptocurrency ends the problem of people being unable to gain access to the monetary and economic systems, this access presents new challenges.
One of the most important tenets of cryptocurrency is, you are the bank. This means you are responsible for custody and control of your own assets.
This can be challenging for cryptocurrency investors who lack the technical expertise, the understanding of their funds and the security protocols to keep it all safe.
Therefore, it’s important that investors understand the risks and challenges of self-custody so that they can make wise decisions on how to best protect their cryptocurrency.
As mentioned earlier, a noncustodial cryptocurrency wallet is a necessary component for operating in the space.
I’ve written this article to help you find the help you need to set up a cryptocurrency wallet.
Bringing It All Together
Ultimately, investing in cryptocurrency can be risky and there are many factors to consider ahead of time.
Pending government regulations, liquidity issues and self-custody challenges are just some of the challenges that should be considered carefully.
However, by completing adequate research, (DYOR), remaining informed and educated on the happenings and developments in the space, investors can increase their chances of success.
Frequently Asked Questions
1. What is cryptocurrency?
Cryptocurrency is digital or virtual currency which uses cryptography for security. Crypto relies on a decentralized network of computers to record and maintain transactions, rather than relying on central banks and governments. This eliminates costly transaction fees and makes crypto attractive as an alternative form of payment. Learn More
2. What is cryptocurrency being used for today?
Cryptocurrency is being used for a variety of purposes today, ranging from trading and investing to more practical applications like payments. For merchants or service providers, cryptocurrency payments provide an alternative form of payment that is faster and cheaper than traditional payment methods. Cryptocurrency is also being used for financial services such as lending and international remittances. Learn More
3. What are the best places to hold cryptocurrency?
The safest place to hold your cryptocurrency is in cryptocurrency wallets. Cryptocurrency wallets provide secure storage for private keys, as well as a tool to send and receive cryptocurrency. The most secure type of cryptocurrency wallet is a hardware wallet, which stores your keys in an offline device. It is important to do your own research (DYOR) before choosing where to store cryptocurrency funds. Learn More
4. What are the benefits of cryptocurrency vs the dollar?
Cryptocurrency offers many advantages over traditional fiat currency. Cryptocurrency’s digital nature allows for faster and cheaper transactions, provides pseudo anonymity as well as superior overall security than than TradFi options. For example, cryptocurrency wallets are far less likely to be hacked. Learn More
5. How do I buy cryptocurrency?
Buying cryptocurrency is a relatively straightforward process on a centralized exchange. You open an account with an exchange, verify your identity, otherwise know as KYC, then you can choose which cryptocurrency to buy and how much of it to purchase. Once you have placed the order and paid for it, the cryptocurrency will be credited to your cryptocurrency wallet on the exchange. After purchasing cryptocurrency, you can either hold it or trade it on the exchange. Learn More
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