Is Cryptocurrency A Good Investment?

Just as with any investment, cryptocurrency comes with potential risks and rewards. Compared to traditional types of investments, cryptocurrency is particularly risky, and at the same time, extremely rewarding.

Bitcoin, the cryptocurrency with the highest value and largest market cap, is also the best appreciating asset of any kind of the past decade. Its value has increased a whopping 31,000 percent since 2010. A 100 dollar investment in Bitcoin in 2010 would be worth some 65,000,000 dollars as of early 2021.

At the same time, cryptocurrencies are known to be extremely volatile, with values that fluctuate wildly, sometimes for the flimsiest reasons. Bitcoin once lost 84 percent of its value in 2018 due to a bear market.

The question of whether or not crypto is a good investment requires a deep dive into the pros and cons, using Bitcoin as a yardstick of measurement.

Pros

One of the main advantages of all crypto coins is that they are global in nature. They have the same value anywhere in the world and there are no exchange rates outside of different national currencies.

A major reason for Bitcoin’s meteoric rise in value, especially from 2018 onward, is the support it has gotten from national governments as well as financial and industrial entities alike. El Salvador recently adopted Bitcoin as legal tender, major US bank Morgan Stanley also offered Bitcoin access to some of its clients.

Many companies in the fintech, software, and IT industries are also using cryptocurrencies extensively in business. Retail investors are also pushing for crypto to be incorporated more into the upper reaches of the financial world. This means that financial infrastructure and future markets are being developed for cryptocurrencies, all of which assure its continuation as a globally recognized financial asset.The volatile nature of cryptocurrency is ironically its biggest advantage, especially for short to medium-term investments. The easiest way to make a profit in the Bitcoin market is the practice of buying in when the value of bitcoin is low or dropping, called buying the dip; and then selling when the value begins to rise again.

Even if Bitcoin and other cryptocurrencies are in a bubble that may ‘pop’ sooner or later, the blockchain technology they are based on is more than likely to continue on. In any case, any cryptocurrency that survives any bubble is also assured to remain, as the dot com bubble in the early 2000s showed.

Cons

In opposition to the support that Bitcoin and other crypto had gained globally are also governments that are cracking down on its use, such as China and Nigeria. This has the double effect of restricting crypto in those places as well as affecting prices globally.

The biggest concern with all cryptocurrency is the fear of the unknown. In the long term, questions such as if the cryptocurrency market is really in a bubble, when said bubble will burst, what currencies will survive.

In the short term; where the market is headed, what will affect the current prices, and other such unknowns.  Of course, these questions are common to all investments, but cryptocurrency is inherently riskier.

Investing in cryptocurrency, whether Bitcoin or Ethereum or Dogecoin or any of the tokens out there is becoming a very popular way of diversifying a business portfolio. If the risks are considered to be too great, investing in stocks of companies such as Coinbase and PayPal that facilitate crypto futures trading provides an indirect entry into the cryptocurrency market.
For more information, see OSOM Insights.

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