Is Cryptocurrency a Good Investment?

Adam Johnson

Investing in crypto assets is risky but is also potentially extremely profitable.

To determine if cryptocurrency is a good investment for you, it is important to examine the pros and cons.

Is Cryptocurrency a Good Investment? — Safety

There are several factors that make cryptocurrency not entirely safe, while other signs suggest that cryptocurrency is here to stay.

To start, safely storing cryptocurrencies is more difficult than owning stocks or bonds. Although cryptocurrency exchanges like Coinbase make it easy to buy and sell crypto assets, many people do not like to keep their digital assets on exchanges due to a risk of theft and cyberattacks.

Therefore, many crypto investors use “cold storage,” such as hardware, in an attempt to safeguard such assets. However, this comes with a big risk. If one loses the private key, a secret number used in cryptography that is similar to a password, it becomes impossible to access the owner’s cryptocurrency assets.

With cryptocurrencies emerging as a cutting-edge technology, the risk for investors increases. Much of the technology is still under development and has not yet been extensively proven in real-world scenarios.

Lastly, there is no guarantee that any given cryptocurrency will succeed. The competition among thousands of blockchain projects is fierce. Only a relatively small number of cryptocurrency projects are likely to ultimately flourish.

Is Cryptocurrency a Good Investment? Short-term Prospects

Many traders invest in cryptocurrencies for the short-term. These traders care less about the utility of the cryptocurrency and more about the price history of the coin. To make quick profits, traders use coins such as Dogecoin for its high volatility.

Other short-term traders buy cryptocurrencies during price surges with the hope to get in early enough to ride out the enthusiasm.

Is Cryptocurrency a Good Investment? Long-term Prospects 

Many cryptocurrencies like Bitcoin and Ethereum have lofty investor expectations, which may be achieved over lengthy time horizons. It seems cryptocurrency technology is headed in that direction with the increase in adoption.

For instance, PayPal (NASDAQ: PYPL) is making it easier to buy and sell cryptocurrency on its popular platform. Other companies have invested hundreds of millions of dollars in Bitcoin and other digital assets. More specifically, Tesla (NASDAQ: TSLA) purchased $1.5 billion worth of Bitcoin in early 2021.

Bitcoin is the most widely known cryptocurrency. Investors in Bitcoin are putting their money on cryptocurrency gaining value in the long-term because the supply is fixed. This is different from fiat currencies like the U.S. dollar. Many investors apparently expect Bitcoin to gain in value as fiat currencies depreciate.

Ethereum is building a global computing platform that supports many other cryptocurrencies.  The large number of cryptocurrencies built on the Ethereum platform creates a sustainable long-term value.

As the Ethereum platform becomes increasingly used worldwide, the Ether token increases in utility and value. Investors who are bullish on the long-term potential of the Ethereum platform can profit directly by owning Ether, the transactional token that facilitates operations on the Ethereum network.

Is Cryptocurrency a Good Investment? — Investment Options

If buying cryptocurrency seems too risky, you can consider other ways to potentially profit from the rise of cryptocurrencies. You can buy the stocks of companies such as PayPal, Coinbase Global Inc. (NASDAQ: COIN) and Block Inc. (NYSE: SQ), which is the new name for Square as of Dec. 10. Investors also can buy shares in an exchange like CME Group (NASDAQ: CME), which facilitates crypto futures trading. While investments in companies may be profitable, they do not have the same upside potential as investing in cryptocurrency directly.

For investors who believe that cryptocurrency usage will become increasingly widespread over time, then it probably makes sense to buy some crypto directly as part of a diversified portfolio. For every cryptocurrency that one purchases, be sure to know why that currency will stand the test of time.

Is Cryptocurrency a Good Investment? — Final Thoughts

Historically, cryptocurrency has been a great investment. However, it is inherently more risky than other asset classes like stocks, traditional commodities, and real estate. Although ambitious, the growth potential for cryptocurrencies is unlike any other investment. Each cryptocurrency also trades independently of the others, so one may fall as another climbs..

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