Cryptocurrency is such a hot topic in the finance world. Some people feel it is too complicated and they don’t want to invest in something they can’t understand.
However, for many, this new investment option and currency is very intriguing. Below we cover what Cryptocurrency is and whether it’s a good investment idea.
What is Cryptocurrency?
Cryptocurrency is a virtual or digital currency. So it’s not money like we know it, there is no physical form, but instead digital tokens. It is a new form of currency. Similarly, it holds a value and can be exchanged, just like other currencies.
The currency tokens are created by encrypted, blockchain technology and it is part of a decentralized network.
It is a new currency economy, that isn’t run by a central authority such as the Government or a Central Bank. So, for some, the appeal is that it isn’t in the system, but has formed a market of its own. This is a liberation some individuals seek.
Should I Invest in Cryptocurrency?
In short, yes it can be a good investment option to diversify your portfolio, but you need to do it with some caution. It is considered a high-risk investment, which more or less means you can win big, or lose big.
It’s a fairly new marketplace in Cryptocurrency exchange so it can be hard to know what might influence the highs and lows of the value.
Bitcoin was the first Cryptocurrency and remains a market leader. To think about some of the volatility, let’s look at Bitcoin.
It began in 2009. By 2013 Bitcoin was worth a bit over $1,100 USD.
Just four years later in 2017, it soared to over $13,000 USD.
Yet, a big dip at the start of 2019 saw prices just over $3,400.
It spiked again though, in June the same year it was just over $12,000 USD.
It has kept climbing, with spikes up and down, and now in 2020, it is sitting at around $19,000 USD.
You get the idea – it has been a volatile market and the reasons for the jumps up and down are hard to explain at times.
Newer Cryptocurrencies Are Higher Risk
Greater caution is needed if investing in new and emerging cryptocurrencies. These are more like speculative investments so they are new so highly volatile.
These new currencies might not make a big splash in the market as Bitcoin did.
The payoff of the risk would be that, if it did take off, then you would see a great return.
Yet, it isn’t wise investment advice to assume that will happen. Assume it is just as likely, if not more, to not give you any return.
So, if you do head down this path – only invest a small amount to start with.
Although some are appealed to the decentralized nature of Cryptocurrency, it is also a source of concern. Skeptics worry – is it really safe? To be fair, there is Cryptocurrency theft and fraudulent activity. It is vital to store the cryptocurrency securely to prevent theft.
As it is not regulated and part of the central system, if something did go wrong you might have fewer avenues to recover your loss.