The term “cryptocurrency” has gained increasing attention in recent years due to its digital convenience and potential for growing assets. One of the first questions an investor should ask is: how safe is a crypto investment? Is it a trend or is it here to stay? Other questions surround how much money it can make in a short time.
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Rising Demand for Cryptocurrency
Before diving into crypto, it’s helpful to investigate its short history. If you bought one Bitcoin in 2011 for $1 then forgot about it, today your digital wallet could pay for a downpayment on a home. At one point in 2021, you could’ve bought one Bitcoin for $30,000 then doubled your money by November. Bitcoin’s rapid rise to fortune triggered the rise in other cryptocurrencies such as Etherium.
The popularity of Bitcoin and other cryptocurrencies is driven by:
- Scarcity, since only 21 million Bitcoins will ever be mined
- Cost of creating the digital coin that requires massive computing power
- Diverse utility of its underlying blockchain technology
Cryptocurrency has gained notoriety as a ransom payment to cybercriminals to unlock frozen digital assets. But on its brighter side, cryptocurrency is used as a seamless solution for digital transactions. A growing wave of large national brands, such as PayPal, have started accepting cryptocurrency. A big part of the optimism fueling crypto is that it’s used outside the traditional banking system. That means you can make online transactions directly without the need for a third-party financial institution.
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Risk Management Strategies for Crypto
Even though you could have doubled your money in Bitcoin, you could have also lost half your money in the same year. It’s an extremely volatile asset due to daily news about whether or not it needs government regulations. One day it appears to be like a wild west gold rush, and the next there’s a scare that bankers and governments will take control of it.
Some of the forecasts about crypto have been absurd, as even financial professionals have predicted Bitcoin to surpass $100,000 in 2021. Due to crypto’s massive growth in value in recent years, it’s attracting many young investors who may not know about the history of bubbles. The dotcom bubble of the 90s, for example, was a fakeout frenzy in which even seasoned investors fell for the notion that any new website with a good idea was “going to the moon.”
Be aware that despite talk of blockchain technology being more secure than other forms of cybersecurity, hackers can still get into your digital wallet and steal your money. Exchanges that handle crypto transactions such as Coinbase and Gemini don’t have the track records that traditional broker/dealers do to assess online security. Another critical issue to remember is if you lose your private key to your digital wallet, you won’t be able to access your money in it – perhaps ever again.
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Professor of Finance Robert R. Johnson, PhD, at Creighton University says no one should think about crypto as an investment for these reasons. Warren Buffett’s partner Charlie Munger, one of the most successful investors of all time, is also against crypto investing. Fans of crypto, however, point to its enthusiastic support from Tesla founder Elon Musk, who has at times been the richest person on earth.
Cryptocurrency is still in its infancy, which means it can grow to become an even more amazing asset in the future. But due to its short history, it’s unclear if crypto has already made its big splash and whether government will continue allowing it to be a decentralized currency. But making a crypto investment that grows exponentially can be the key to expanding investment capital in the future. For now, stay up to date with information on the world of cryptocurrency and how it’s transforming business.