Since its creation in 2009, the popularity of cryptocurrency has soared exponentially – with many people investing in it claiming it is an easy way to make money. While Bitcoin was the first established cryptocurrency, many others are now in circulation including Ethereum, XRP, and Dogecoin, to name but a few. Collectively, this makes the whole cryptocurrency market worth trillions of dollars and is often seen as a lucrative, long term investment for many. Yet, before you rush to invest your hard-earned cash in this online economy there are a few key things to consider. Read on to find out more.
High returns vs high volatility
As with any type of investment any returns you get from putting money into cryptocurrency aren’t guaranteed. This is probably even more so the case with cryptocurrency as the market is self regulated. Unlike traditional investment in stocks, significant price fluctuations happen all the time with cryptocurrency and can be caused by relatively insignificant events. For instance, in May 2021, the cryptocurrency market shrunk by around 27% simply because Tesla billionaire Elon Musk raised concerns over Bitcoin’s environmental impact.
If one tweet can derail an entire market and cause millions of pounds worth of losses, the market is clearly highly volatile. It is worth questioning just how much value an asset can truly have if its price can swing so widely and that will make some investors nervous to get involved in case they lose everything. That being said, you don’t have to look far to find a story about someone who has made their fortune from investing in crypto.
Unpredictable compared to traditional markets
Perhaps unlike traditional stock markets, it’s very difficult to know when the cryptocurrency market is peaking or if you should hold onto your assets a bit longer to see if they will continue to rise in value. Economic analysts cannot predict to the same extent if the cryptocurrency market is overinflated or if a bubble might be about to burst due to the fact the worth of cryptocurrency thrives so much on speculation. A sudden influx or withdrawal of money by a few large investors can cause havoc for everyone else involved too.
The same unpredictability also affects those wanting to start investing in cryptocurrency, as it is extremely difficult to know when a dip in the market is temporary or if it’s long term. This means if you buy crypto on what you think is the dip but then it dips further, you’ve purchased it at a much higher price than you could have if you’d have waited longer.
Regulation
The fact that cryptocurrency markets are not regulated by any sort of government or governing body means that transactions do not need to be verified to take place. In practice, this allows for it to be used and owned anonymously – a big draw for many users. However, it also means participants are often the targets of cryptocurrency scams, and if these are successful the money is simply gone forever – claiming a loss to the bank due to a scam and getting some money back is not an option.
Nonetheless, the creation of regulatory standards to help buyers better understand the risks of investing in cryptocurrencies seem to be gaining traction across the world including in South Korea, among EU members, and in the US.
It is clear that the future of cryptocurrency is an uncertain one and investment into this market carries significant risk, yet it’s definitely exciting to watch everything unfold – even from a distance.
What do you think about investing in cryptocurrency? Is it a good or bad idea? Let us know your thoughts in the comments section. And, if you liked this post why not check out: How to spot, and avoid becoming a victim of, a cryptocurrency scam.
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