Should or shouldn’t you invest in cryptocurrency? There are lots of pros and cons. Crypto could be a better hedge than gold against inflation, and adoption is growing, which signals there’s more wealth to be made.
There are many reasons to invest in crypto, here are 5.
In early November, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 6.2% over the last 12 months, the highest yearly increase in 30 years. That means the purchasing power of that $100 bill in your wallet is now only worth $93.80 compared to last year. However, crypto such as Bitcoin isn’t tied to one currency or economy, so its value remains unchanged.
Bitcoin, for example, has a fixed supply of 21 million coins, and nearly 19 million have already been mined. New coins can’t enter circulation, unlike US dollars that can be printed at any time, so there’s no risk of supply lowering value or increasing inflation.
While gold is seen as durable, secure, and scarce, crypto offers the same advantages and more. Unlike gold, crypto, such as Bitcoin, is portable, transferable – and more advantageous – decentralized. While sovereign nations control the gold supply, anyone in the world can store and protect their cryptocurrency much easier than with gold.
For those who can absorb some risk in their portfolio, cryptocurrency makes sense for diversification and the possibility of maximum potential rewards. Granted, crypto is more volatile and higher risk than stocks, bonds, and other investments – so it isn’t for those who can’t afford the risk.
For those who pick the right digital coins to invest in, the potential for generous rewards is huge. For example, if you had invested $500 in Ethereum in 2015 when it bottomed out at a price of $0.42 per coin –it has now surged over 1 million percent – your investment would be worth $5 million today, according to The Motley Fool.
While there are many reasons to invest in crypto, likewise, there are reasons you shouldn’t. Here are two of the most important:
Cryptocurrency is still evolving, even though adoption is increasing and its popularity is rising. The Motley Fool reports around 11% of Americans have invested in virtual coins. However, it remains misunderstood – and because of this – celebrity or influencer endorsements or negative comments can push the price up or down in dramatic ways. At present, crypto is susceptible to hype. Because of this, the price of different coins can be disconnected from their underlying value, making them highly volatile.
Cryptocurrency has only been around for a short time. Even shorter, when you compare them to established investments, which can be evaluated to assess potential future performance. Therefore, it’s much more difficult to estimate future potential earnings, as well as your investment risk, when it comes to crypto.