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Six in 10 (60%) Americans rate the risk of investing in crypto as “high”, according to CNBC|Momentive Make It: Your Money Poll. The currency remains among the least popular investment options, especially among older generations.
Even the majority of current crypto investors (60%) say the risk of investing in cryptocurrency is high. Those who are willing to chance it are the younger generation. Millennials are the most comfortable investing in cryptocurrency, with around 15% investing in crypto.
Is Cryptocurrency a Worthwhile Investment?
Unlike stocks and bonds, crypto’s value isn’t underpinned by a commodity. You’re not buying a share of profit in a business.
Cryptocurrency, like Bitcoin, derives its value mainly from supply and demand. Bitcoin has a limited supply, and as demand increases, in theory, so too does its value. Cryptocurrency is also decentralized, meaning a monetary authority or government does not control it, and the blockchain technology it’s built on is highly secure. This adds to its perceived value.
But while Bitcoin and other cryptocurrencies are slowly being adopted in the marketplace, it’s still not as mainstream as traditional currency, leading many to believe it has little value. Because you can’t see or touch it, its ethereal nature makes people nervous.
More daring investors, however, are willing to place their bets on cryptocurrency because of its limited supply. The world will likely run out of Bitcoins by 2140. As crypto becomes increasingly scarce, there’s a chance its value will skyrocket.
Why is Cryptocurrency So Risky?
Investing in digital currency is not for the fainthearted. Crypto has a reputation as being a highly volatile asset subject to erratic price fluctuations.
Bitcoin, for example, has gone through meteoric rises and crushing falls. On two occasions, Bitcoin’s price plunged by around 30% in a few days. The price of Bitcoin has swung from an all-time high of nearly $69,000 to below $20,000.
If you’re going to invest in crypto, expect a rollercoaster ride of euphoric highs when its value lurches upwards and stomach-dropping lows when it crashes.
Why is cryptocurrency so volatile?
The same factors that are appealing, such as deregulation, are what make crypto risky. With no regulatory oversight and nothing to back up the currency, investing in crypto is highly speculative, and speculative investments tend to be volatile.
Cryptocurrency is also sensitive to media publicity, public sentiment and activity in the cryptoverse.
For example, when the crypto exchange firm FTX collapsed, the price of cryptocurrencies plummeted. Similarly, when Elon Musk posted a tweet declaring Tesla would no longer accept Bitcoin payments, Bitcoin’s value nosedived.
On the other hand, in July 2023, cryptocurrency prices unexpectedly surged after Ripple Labs scored a significant win in its court case against the Securities and Exchange Commission (SEC). In 24 hours, Bitcoin gained 2.46%, pushing its price above $30,000.
Should You Invest in Cryptocurrency?
With ups and downs that can happen overnight, it’s no surprise that most Americans are skittish when investing in crypto.
Given the volatility of the crypto market, is it a good idea to invest in digital currency? What are the risks and potential rewards?
With such an unstable history, it’s hard to predict how cryptocurrency will perform in the future. What we do know is that the crypto market is resilient. Despite having the wind knocked out of its sails numerous times, it tends to bounce back.
Bitcoin, for example, is again showing signs of recovery. At the time of writing this article, the price of Bitcoin was back up to $30,000. Despite its notorious volatility, experts predict Bitcoin’s value will rise further, possibly hitting the six-figure mark by 2024.
Some investors use crypto crashes to their advantage, believing that “buying in the dip” can yield an excellent return when the market swings upward.
If you have the stomach for the rollercoaster ride and you can absorb a loss should it occur, then taking a chance on crypto could pay off.
Is There a Safe Way To Invest in Cryptocurrency?
Yes and no. Every investment carries a risk, so there’s no guarantee that your money is safe. If you decide to invest in crypto, know the risk and prepare for a loss should it occur.
On the other hand, you can minimize the risk by choosing a reputable trading exchange platform. When choosing a cryptocurrency exchange, consider the following factors:
Security. Crypto exchanges are a target for hackers. Does the exchange have a strict security protocol in place? Do they offer to replace lost coins if they are stolen?
Available coins. How many coins does the exchange offer? Buying different crypto coins means you’re not putting all your eggs in one basket.
Trading volume. If the trading volume is low, you could be buying at a higher cost or end up selling at a lower cost.
Another way to explore crypto is by adding it to an investment portfolio, for example, by adding Bitcoin to your retirement fund. If you only invest one of two Bitcoins into your IRA, most of your retirement funds will remain safe even if Bitcoin performs poorly.
Furthermore, as retirement investments are long-term, the dips in the crypto market in the short term won’t be as alarming. Choose a trusted crypto IRA platform, like Swan Bitcoin IRA, that holds your Bitcoin in a custodial legal trust account and offers a tax advantage.
In Conclusion
If you’re thinking about investing in cryptocurrency, don’t enter into it expecting to make a quick buck. While it’s possible your money may suddenly double overnight, its fickleness could also lead to losses.
Consider your risk appetite and consult with a financial advisor who specializes in crypto investing. Start small, and as your confidence grows, so too can your crypto wallet.
