Is cryptocurrency a profitable investment?
Are digital currencies a profitable investment? Are digital currencies a safe investment? It is possible to become very rich by investing in cryptocurrencies, but you may also lose all your money. Investing in digital assets is risky, but also very profitable.
Let’s take a look at the pros and cons of investing in digital currencies.
Are digital currencies a safe investment?
There are several factors that make digital currencies a completely unsafe investment, so what are the risks of digital currencies?
Cryptocurrency exchanges are always more vulnerable to hacking and become targets for various other criminal activities than stock exchanges. Security breaches led to huge losses for investors whose cryptocurrencies were stolen, prompting many third-party exchanges and insurance companies to start offering hack protection.
Storing cryptocurrencies safely is also more difficult than owning stocks or bonds. Cryptocurrency exchanges such as Coinbase make it fairly easy to buy and sell digital assets such as Bitcoin and Ethereum, but there are many people who do not like holding their digital assets on exchanges due to the risks involved.
Storing digital currency on a centralized exchange means that you do not have complete control over your assets, the exchange could freeze your assets upon a government request, or the exchange could go bankrupt and you would have no way to recover your money.
Some cryptocurrency holders prefer offline “cold storage” options such as hardware wallets, but cold storage comes with its own set of challenges such as losing your private key.
There is also no guarantee that a cryptocurrency project you invest in will succeed. Competition is fierce among the thousands of blockchain projects, so only a small percentage of them will eventually thrive.
Growing digital currency adoption
Despite the risks that may be involved, the power of cryptocurrency and the blockchain industry is constantly moving forward. The financial infrastructure you need is being built, investors are increasingly able to access institutional custody services, and professional and individual investors are gradually receiving the tools they need to manage and protect their digital assets.
Cryptocurrency futures markets are being established, and many companies are also gaining direct exposure to the digital currency sector. Financial giants like Block and PayPal make it easy to buy and sell digital currencies on their popular platforms, and others like Block have poured hundreds of millions of dollars into Bitcoin and other digital assets. Tesla purchased $1.5 billion worth of Bitcoin in early 2021, and the electric car maker reported holding nearly $2 billion in the digital currency.
Although there are many other factors that continue to influence the digital currency, the increasing pace of adoption is a sign of a mature industry. Individual and corporate investors seek direct exposure to cryptocurrencies, considering them safe enough to invest large sums of money.
Is digital currency a profitable long-term investment?
Many digital currencies like Bitcoin and Ethereum are launched with lofty goals, which can be achieved over long time horizons. While the success of any cryptocurrency project is not guaranteed, long-term investors can be rewarded with success and good returns.
Bitcoin
Bitcoin, as the most popular digital currency, benefits from the network effect, i.e. more people want to own Bitcoin because it is owned by most people. Bitcoin is currently viewed by many investors as “digital gold,” but it can also be used as a digital form of money.
Bitcoin investors believe that the digital currency will gain value in the long run because the supply is fixed, unlike the supply of fiat currencies such as the US dollar or the Japanese yen. Bitcoin supply is capped at less than 21 million coins, while most coins can be printed at will of central bankers. Many investors expect bitcoin to gain value as fiat currencies depreciate in the future.
Ethereum
While Bitcoin can be considered digital gold, Ethereum is building a global computing platform that supports many other digital currencies and a massive ecosystem of decentralized applications (“dApps”).
There are a large number of digital currencies built on the Ethereum platform, plus the open source nature of dApps creates opportunities for Ethereum to also benefit from the network effect and create sustainable and long-term value. The Ethereum platform enables the use of “smart contracts,” which are automatically executed based on conditions written directly into the contract code.
As the Ethereum platform is increasingly used all over the world, the Ether token is increasing in utility and value. Investors who are optimistic about the long-term potential of the Ethereum platform can profit directly by owning Ether.
This is not to say that Ethereum does not have competition, rather a number of rival coins including Solana (CRYPTO: SOL), Polygon (CRYPTO: MATIC) and Avalanche (CRYPTO: AVAX), are designed to handle smart contracts and use a blockchain system capable of processing more Transactions Per Second Ethereum remains the most widely adopted platform for using smart contracts.
Should you invest in digital currencies?
If you think that the use of cryptocurrency will become more and more widespread over time, then it might make sense for you to purchase some cryptocurrency and include it in your wallet. Before you decide on which cryptocurrency you want to invest in, make sure you have an investment thesis on why this currency will last and stand the test of time. If you do your research and learn as much as you can about how to invest in cryptocurrencies, you should be able to manage the risk of investing as part of your overall portfolio.
If buying cryptocurrencies seems risky, you can consider other ways to potentially profit from a cryptocurrency rally. For example, you can buy shares of companies such as Coinbase, Block, and PayPal, or you can invest in an exchange such as CME Group, which facilitates the trading of cryptocurrency futures contracts. Although investments in these companies may be profitable, they do not have the same potential as investing in cryptocurrencies directly.
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