As investors watch the scary fluctuations that happen in the crypto market, they can’t help but ask, is crypto a good investment?
Well, it is difficult not to ask such questions when you remember that as recently as March 2021, bitcoin sold above $55,000. But as I type this now (13th August 2021), bitcoin currently sells at about $45,000.
A whopping $10,000 wiped out in value!
If you have observed the crypto market in the last few years, you would have noticed the highs and lows that happen now and then.
So, is the Crypto market a good place to invest your capital?
This article will be answering this question and several others.
Let’s hit the road.
What is Cryptocurrency?
It is a digital currency through which transactions can be verified and records maintained by a decentralized system, using cryptography to protect against fraud, instead of a centralized authority.
Cryptocurrencies are managed by a decentralized system, making it very difficult for them to be controlled or manipulated by any government or central authority.
Cryptocurrencies operate with a technology known as the blockchain. What is blockchain technology?
It is a way of recording data in such a manner that it is almost impossible to alter it or cheat the system.
A blockchain is a ledger of digital transactions that are duplicated and shared across the entire network of computers on the blockchain.
Each block on the chain holds several transactions. Every time a new transaction happens on this blockchain, a record of that transaction is sent to all participant’s ledgers.
This decentralized database managed by multiple participants is known as Distributed Ledger Technology.
Blockchain is a kind of distributed ledger technology, in which transactions are stored with an unchangeable cryptographic signature known as “hash.”
Types of Cryptocurrencies
Although most investors may not know it, there are over a thousand types of cryptocurrencies available in the crypto market.
However, for the sake of convenience, we will be reviewing the best cryptocurrencies available in the crypto space.
- Bitcoin (BTC)
The average person who has heard about cryptocurrency will most likely have heard of bitcoins. In fact, for some, Bitcoin is almost becoming a synonym for cryptocurrency.
Why? It is one of the best cryptocurrencies available!
What is Bitcoin?
Bitcoin is the first blockchain-based cryptocurrency that was developed. It was launched in 2009 by “Santoshi Nakamoto.” To date, it is unknown if Santoshi Nakamoto is an individual or a group.
As of August 2021, Bitcoin was valued at $858.9 billion, with about 18.8 million bitcoins in circulation.
It is expected that the number of bitcoins will continue to increase, as more of it is being mined. The total number of bitcoins that exist is capped at 21 billion. It cannot be increased beyond that number.
Until a few years ago, Bitcoin enjoyed very little acceptance, as a medium of exchange. However, in the last 5 years, several big organizations have recognized Bitcoins as a medium to pay for their goods.
This factor contributed immensely to the surge in the value of Bitcoins.
- Ethereum (ETH)
Another top cryptocurrency in the crypto space is Ethereum!
Ether is the name of the token used for transactions on the Ethereum network. Ethereum is a crypto network that uses blockchain technology to create smart contracts and decentralized applications to be built and run without any complications, control or interference from a third party.
In effect, Ethereum does not only refer to a cryptocurrency, it also refers to a software development platform.
Ether was launched in 2015 and is presently the second most popular and most valuable cryptocurrency (just behind Bitcoins).
- Litecoin (LTC)
Founded in 2011, Litecoin remains one of the popular names in the crypto space. It was developed by an MIT graduate and former Google engineer, Charlie Lee.
This cryptocurrency is based on an open-source global payment network, that is not under any central control. Rather, it uses “script” as proof of work, and it can be decoded by a regular office or home CPU.
As of January 2021, Litecoin was valued at $10.1 billion, in total. However, each Litecoin token was valued at $153.88. This figure places it in the top 10 most valuable cryptocurrencies in the world.
Litecoin is one of the best cryptocurrencies available today.
- Binance Coin
As Binance, a crypto exchange platform has become more popular, their crypto token/currency known as Binance coin has benefited from this popularity.
Like other crypto tokens, the Binance coin can be used to facilitate transactions on the Binance crypto exchange platform, and across other online platforms where it is accepted.
Binance coins are also used to power Binance decentralized exchange for building apps. Binance coin may emerge as the next big crypto, as the popularity of their exchange platform keeps rising.
- XRP (Ripple)
Another cryptocurrency that seems to be emerging as the next big crypto is XRP!
XRP is the cryptocurrency offered by the digital payment platform RippleNet. RippleNet was established by Ripple.
XRP was designed to help financial institutions to make digital payments across various countries and continents while reducing the cost of such transactions.
What’s more, with XRP, users can also access short-term loans.
If this article was written as little as three years ago, Dogecoin will likely not make the list of top cryptocurrencies.
However, the recent events in the crypto space have contributed immensely to the popularity of Dogecoin.
One of such is the support it recently received from Tesla and its CEO Elon Musk. Presently, it is accepted as payment for all Tesla products.
It has also enjoyed the support of Mark Cuban, a popular investor, and owner of the popular basketball team, Dallas Mavericks.
This public support for dogecoin has seen it skyrocket in value, and establish itself as a top cryptocurrency, in the crypto space.
Although Dogecoin was initially launched as a joke directed at other cryptocurrencies (especially bitcoins), it is far from being a joke today!
Like bitcoins, dogecoin is designed to facilitate digital transactions. It makes it easier and faster for payments to be recorded.
Dogecoins has no limits to the number of coins that can be created, unlike the bitcoin that has a limit of 21 billion bitcoins.
The dogecoin features a meme of a Shiba Inu dog, as its mascot.
How to Invest in Crypto
Is crypto a good investment for you?
It will be difficult to answer this question if you are not familiar with how to invest in crypto assets in the first place.
So, we will be discussing how to invest in crypto assets here.
- Invest only what you can afford to lose
One of the most important principles you will ever come across in the crypto space is to invest only what you can afford to lose.
As you may know, the crypto market is highly volatile or prone to unexpected fluctuations. That is why it is so important that you invest only an amount of money that you can afford to lose.
Funds such as your house rent and other necessary bills you have to pay weekly or monthly should never be invested in any crypto asset.
Why is it so?
The fluctuations in the crypto market can wipe out half the value of your crypto assets in a matter of hours.
This is why it is so important to invest only the amount that you can easily forget about if things go south.
- Allocate a small portion of your investment portfolio to crypto assets
The recent spike in the value of cryptocurrencies such as Bitcoin has made lots of investors interested in purchasing crypto assets.
However, if you choose to invest in crypto assets, let your investment only be a small part of your general portfolio.
Why is this so?
Cryptocurrencies were not originally intended to be investment vehicles. They were rather designed to be mediums of exchange. So, unlike stocks, mutual funds, Index funds, etc., they do not offer dividends to owners.
Investing in dividend-yielding assets will be a better alternative.
In addition, the crypto market is highly volatile. The price fluctuation is so unpredictable that it could wipe out nearly half of your investment in just hours!
Having a good portion of your investment portfolio wiped out by a plunge in crypto assets will not be a good experience for you.
This is why you should limit the portion of your investment portfolio directed at cryptocurrency, to be less than 10%.
If it is done so, a crash in prices will not wreck any significant damage. While a rise in value will bring a significant increase to the value of your portfolio. You can thereafter, rebalance the portfolio to reflect the less than 10% principle.
- Choose your crypto assets wisely
There are over a thousand Cryptocurrencies available in the crypto market at the moment. This makes it quite difficult to select which to invest in.
Although bitcoin has been the most dominant and most talked about, there are other cryptocurrencies that are less expensive and could give you a reasonable return on your investment.
Cryptocurrencies like Litecoin, Dogecoin, Ethereum, etc. have all produced decent returns for investors in the recent past. You may want to evaluate this and other cryptocurrencies that could turn out to be the next big crypto.
- Choose your crypto exchange wisely
Although there are several crypto exchanges available to facilitate your crypto trades, you need to select one that aligns with your needs and investment strategy.
We recommend you read our article on how to choose a crypto exchange that will suit your needs.
- Start Small
One advantage of starting small is that it allows you to learn how a system works without much pressure. For instance, if you start investing with $100, the pressure will be lesser than it would be if you start investing $10,000!
As you master your strategy, you could gradually increase your investment in cryptocurrency to the size of your portfolio you wish to commit to crypto investments.
Advantages of Investing in Cryptocurrency
- Potential high returns
Investing in the best cryptocurrencies could mean high returns for you. For instance, in 2020 September, a bitcoin sold for $10,764, but three months later, it was selling for $28,768!
That’s over a 100% increase in value in just three months!
This is one reason why many investors like to include cryptocurrencies in their investment portfolios.
2. Protection from payment fraud
As mentioned earlier, the cryptography used in fraud protection in cryptocurrencies makes it nearly impossible for criminals to commit payment fraud using cryptocurrency. This makes cryptocurrency a safe and secure means for paying for goods and services online.
In addition, the possibility of theft is quite slim as many crypto exchanges offer solid protection for cryptocurrencies within their control.
3. Growing International Acceptance.
Gone are the days where cryptocurrency was seen as an internet fad.
Today, more and more big companies are accepting cryptocurrency as a medium of exchange for their goods and services.
Notable companies like Tesla, Microsoft, PayPal, etc. now accept at least one type of cryptocurrency as a means of payment.
What’s more, on the 9th of June, 2021, El Salvador’s Congress approved the proposal to make Bitcoin her national currency.
All this demonstrates the increasing acceptance Cryptocurrency now enjoys.
Disadvantages of Investing Cryptocurrency
- High volatility
A major challenge of investing in cryptocurrency is the high volatility in price. An investor could suffer huge losses within a few days.
To worsen things, these price fluctuations can be unpredictable most time. All of a sudden, things could just go south, from good to bad.
And as investors rush to sell their stake, the prices will sink faster!
2. No regulating authority.
Even though this is an advantage, it could become a challenge sometimes, especially when there is fraud and you need to report it to somebody!
There is simply no one to report to, and expect that the situation will be redressed. If you suffer any losses from fraud, you can as well forget about it, because it is not much you can do.
Is Crypto a good Investment?
The answer to this question lies in your investment goals and strategies.
If after learning all this about cryptocurrencies, you believe it aligns with your needs; then for you, crypto is a great investment.
However, if after looking at the pros and cons of investing in cryptocurrency, you believe it is not worth it, then go ahead and invest in other assets that align with your needs, goals, and investment strategy.
Wishing you the best as a go-ahead to make your investment decision!