Is cryptocurrency a good investment?
In October, the cryptocurrency asset class rose more than 8% , breaking the $1 trillion in market capitalization. However, 2022 doesn’t seem to be a crypto year.
A lot has happened in the crypto industry amid the 2022 crypto winter. With nearly $ 3 billion lost to scams, Terra Luna’s collapse in May, and FTX’s abrupt implosion in November, investors are at the receiving end.
Moreover, the FTX collapse has reduced confidence in crypto and increased extreme caution when investing in exchanges.
If you are wondering whether crypto is worth investing in 2023? This article is for you.
Is cryptocurrency a good investment?
Undoubtedly, investing in cryptocurrency can lead to soaraway returns. Yet, it can also cause sporadic overnight loss. Like other assets, it’s highly volatile and speculative.
That said, cryptocurrency may be ideal if you have a high-risk tolerance. It’s a good investment if you want first-hand exposure to crypto demands and to diversify your portfolio.
However, purchasing companies’ stocks with cryptocurrency exposure is a more secure but less profitable option.
Before investing in crypto coins, ensure that you are convinced based on facts instead of hype. Because the crypto space thrives on hype.
Notwithstanding, more people are investing in cryptocurrency than ever before. Investment banking giant JP Morgan Chase advised in February 2021 that investors could consider putting 1% of their investments into bitcoin to diversify their portfolio.
Pros and cons of cryptocurrency
Cryptocurrency pros
1. Cryptographically secure
Due to Blockchain’s immutable technology, cryptocurrencies are secure. Once your transactions are processed, they are irreversible. Thus, it’s unlikely for hackers to access the information on the entire chain in one go.
2. New asset class
Although Blockchain and cryptocurrency are still evolving, digital assets like Bitcoin, Ethereum, and 19,000 others have emerged as a new asset class.
As evident from Cathy Wood, whose Ark Investment Management invested $62.7 million in In Bitcoin and crypto Stocks amid FTX contagion .
3. 24/7 Crypto trades
Unlike banks, crypto markets are always available. Since transactions take place round the clock, so are blocks mined 247. You can access, buy, sell or trade your cryptos any day. Investing in cryptocurrency offers you a way to profit outside the usual working hours.
4. Diversification
With hundreds of digital currencies, you can minimize risks by diversifying your portfolio and keeping several investments with unique performance under similar economic conditions. Furthermore, there are many investment instruments like options and futures on cryptocurrencies.
5. High reward potential
Cryptocurrency prices have the potential to hike suddenly. It’s so because crypto prices depend on demand and supply dynamics. Prices tend to spike if there’s limited crypto supply from miners.
Cryptocurrency cons
1. Cryptocurrencies are prone to fraud and security risks
You won’t believe it, but losing your crypto investment can be as easy as blowing air. All it takes to lose your crypto holdings is losing your keys or as simple as clicking a phishing link.
There are many other malicious ways, like rug pulls, Ponzi schemes, etc., and you could lose your assets to cyber thieves.
In 2022, nearly $ 3 billion was lost to crypto scams . Although experienced investors may have learned all the tactics, beginner investors are easy victims.
2. Cryptocurrency has lots of unknown
With the hype and buzz around crypto, it’s easy to forget that the technology is a little over a decade old and, thus, still nascent. However, in contrast, the stock markets are centuries old.
No one can tell whether or not crypto can withstand the test of time and be a good long-term investment. Investing in cryptocurrency is akin to plunging into the unknown.
3. Cryptocurrencies have an unproven rate of return
In the same vein that cryptocurrencies can spike up to the moon, they can also drop below the earth. Cryptocurrencies have unproven and unstable return rates. You never can tell what happens next. For instance, Bitcoin dropped by a whopping 45% within two months from its highest on September 13 at $22,673.82 [6] to $16,587.55 apiece on November 24.
According to Benzinga, it’s not uncommon for Bitcoin to dip 80% to 90% in a bear market. In 2015, Bitcoin lost 84% of its value, and in the 2018 bear market, Bitcoin lost about 85% of its value
The crypto markets dine and wine with price fluctuations. Thus, it may not be the best option if you’re looking for stable returns.
4. Cryptocurrency is unstable
What do you expect in a market riddled with price fluctuations? Extreme instability and volatility. You could lose your assets just as quickly as you earned them.
5. Cryptocurrency has a long learning curve
Cryptocurrency terms may seem like jargon to regular people. It’ll take time and effort to grasp the crypto lingua to understand how crypto works if you’re a beginner. Meanwhile, learning helps you make the best financial choice.
Moreover, the cutting-edge technology behind cryptocurrency is still evolving and is not yet widely proven in the real world.
6. No legal protection
Unlike financial assets backed by regulatory authorities, where users can get compensation in times of loss, cryptocurrency lacks regulations. Cryptocurrency is designed to operate without regulations, a feature advantageous in an open market but also a disadvantage in times of loss.
7. Cryptocurrency may come under regulations
With the recent unfortunate happenings (Terra Luna’s and FTX’s implosion) and billions of financial losses, regulators may as well crack down on the entire crypto industry to save people’s investments.
Cryptocurrency as a long-term investment
Long-term crypto investment is an investment that goes on for at least a year or more than five years. The idea is to buy a promising cryptocurrency, hold it for longer years (at least a year), and sell it when the price surges.
The success of such investments relies on your ability to foretell the spike in crypto prices in the future.
For instance, the early long-term investors in Bitcoin bought when it was a few hundred and held onto it for years. You can imagine how much they made in profit.
Meanwhile, the success of any crypto asset is not guaranteed. For most cryptocurrencies, gaining mainstream adoption is essential to be regarded as a long-term success.
Since long-term crypto investment requires a longer time horizon, you must understand the following:
- How crypto assets work.
- How reliable and transparent is the project team.
- The project’s team vision.
- What you’re investing into.
If all works well, it could be a happy payday for you. It’s important to note that long-term crypto investment is a rollercoaster ride. There’d be bad and low days that may extend to weeks or months.
For instance, crypto markets have experienced a meltdown in most of 2022. Thus, you may experience losses before you hit the jackpot.
Meanwhile, you need ample belief in crypto’s future and the project team’s vision to survive downtown, even if bad days stretch.
Cryptocurrency as a short-term investment
Short-term investment involves buying and selling digital currencies for interest or profit within a brief period, usually less than a year.
Short-term crypto investment involves exploiting and taking advantage of market opportunities. You speculate prices and trade your cryptos when the market goes according to your prediction to earn profit. Otherwise, you exit the market if it results in a loss.
Difference between long-term and short-term investment
| Long-term crypto investment | Short-term crypto investment | |
| 1) | No trading fees. Thus, in terms of cost, long-term investment is more profitable. | Charges transaction fees for each trade |
| 2) | It’s riskier. | It’s less risky than a long-term investment. |
| 3) | Your capital is tied-up. You wait to sell at the highest price. | Selling before the market is at its highest peak. |
Bitcoin as a long-term investment
Bitcoin is the original cryptocurrency and commands a high long-term value [9] because it has never been hacked.
It enjoys the tag “digital gold” because many investors believe Bitcoin is a store of value. The digital coin founded in 2009 is the native coin of Bitcoin’s Blockchain. BTC attained an all-time high price of $69,000 and traded for 16,000 in November 2022.
Bitcoin has a fixed supply. By design, only 21 million Bitcoins will exist, out of which more than 19 million are already in circulation. This means new Bitcoins will not be created once the fixed supply is reached, unlike fiat currency printed at the authorities’ will.
With less than 2 million Bitcoins left to be mined, many believe that Bitcoin’s price will skyrocket as time goes on.
Many also believe that Bitcoin will be widely accepted and used as a global digital currency.
Ethereum as a long-term investment
Ethereum is the second largest cryptocurrency denoted as Ether (the native coin) across the Ethereum Blockchain.
Ethereum is the powerhouse of many cryptocurrencies, NFTs, dApps (decentralized applications), and smart contracts. This enables the network to create sustainable and long-term value for users and investors.
Ethereum becomes even more valuable in price and utility as it gains more use cases. Thus, it’s a worthwhile long-term investment for investors bullish on its potential.
Investing in cryptocurrency stocks
Investing in crypto stocks is a smart investment in virtual currencies. The best thing about investing in cryptocurrency stocks is that they reward you with bulk diversification and business operations beyond the crypto industry.
Thus, many investors find crypto stocks more significant than buying only cryptocurrencies.
The crypto world is gradually gaining global adoption. And the momentum in crypto stocks is expected as more companies join in the blockchain revolution.
United Wholesale Mortgage, a top lender in the US in 2022, announced it accepts Bitcoin for settling mortgage payments. Examples of the best cryptocurrency stocks to consider include:
- CME Group,
- Coinbase global
- Robinhood markets
- Block and PayPal Holdings
- Nvidia and AMD
What to consider when buying a cryptocurrency
Cryptocurrency risks
Cryptocurrency has its fair share of risk. Some of these includes
1. Cryptocurrency exchanges vulnerable to hackers
Because crypto exchanges deal with dizzying sums of money, they are hackers’ easy targets. The good thing is many exchanges offer protection against hacks.
2. Cryptocurrency lacks a guarantee
It’s unknown whether the project you chose to invest in will succeed. Everything in the crypto market depends on speculations rather than known facts.
Among the plethora of emerging projects, many will fail due to mismanagement, lack of foresight, and those that were half-baked scams and rug pulls. Eventually, only projects solving real-world issues will boom.
Trading vs. Investing
It’s essential to understand what you’re going into. Are you a trader or an investor?
Trading involves exploiting opportunities by buying and selling cryptocurrency at a profit or exiting the market when you incur a loss.
Investing, however, implies that you buy and hold on to dear life (HODL) over a long period before you sell when crypto prices are at their highest. Check out the best cryptocurrencies to buy in 2023.
Liquidity constraints
It’s a strategy that imposes a limit on the amount you can borrow or an alteration in the interest rate you pay.
The liquidity constraint affects the ability of households to transfer resources across periods and uncertain states of nature relative to income.
Diversification
Diversification is an investing strategy used to manage risk [11]. Instead of putting all your money in one basket (asset class, company, industry, etc.), you distribute your investments across several sectors and asset classes.
Upside potential
The upside-potential ratio measures a return on investment assets relative to the minimal acceptable return [12]. The measurements enable you to choose investments with excellent upside performance per unit of downside risk.
The upside potential depends on your risk appetite and how far you’re willing to go.
fundamentals are in place should a person consider investing in a speculative
asset such as cryptocurrency…”Jason
Cryptocurrency Overview
What is cryptocurrency?
Cryptocurrency, or crypto, is a digital currency that works as a medium of exchange without relying on a central bank or government to control it. Instead, transactions are maintained via a decentralized network.
Is cryptocurrency safe?
The underlying blockchain technology is inherently secure despite its transparent and open-source nature. Thus, transactions across most crypto networks are secure if you follow due diligence and best practices.
Investing a small percentage, usually not above 5%, is advisable in your crypto portfolio.
Types of cryptocurrency
There are almost 21,000 cryptocurrencies. The most popular and valuable digital currencies include Bitcoin (BTC), Ethereum (ETH), Tether (USDT), USD Coin (USDC), Cardano (ADA), Binance Coin (BNB), and Solana (SOL).
Current prices
As of November 2022, One Bitcoin is $16,411.03, ETH goes for $1,208.85 apiece , Tether (USDT) $0.9998 , USD Coin (USDC) is $1.00 apiece, Cardano (ADA) is $0.3089 , Binance coin (BNB) is $299.84 , and Solana (SOL) is $13.60 .
Cryptocurrency legal and tax issues
Depending on your location and crypto usage, you may be required to pay taxes on your crypto wealth. Meanwhile, any profit or income your cryptocurrency generates incurs tax.
Future of NFTs
NFT is a digital asset that proves ownership on the Blockchain. They’re indivisible and not exchangeable.
NFTs have many use cases in the gaming, real estate, and metaverse Industry, as well as in the hospital and voting. Thus, we can say that NFTs will completely revolutionize how we buy, sell and interact online and in the real world.
Future of DeFi
Decentralized finance, DeFi removes centralized financial institutions like banks by giving access to financial services to anybody without restrictions.
DeFi applications enable users to control their funds via personal wallets and trading services. Enthusiasts regard DeFi as the future of financial services.
Future of DeFi
Decentralized finance, DeFi removes centralized financial institutions like banks by giving access to financial services to anybody without restrictions.
DeFi applications enable users to control their funds via personal wallets and trading services. Enthusiasts regard DeFi as the future of financial services.
Bitcoin’s Future Outlook
Due to its finite supply, analysts forecast the coin’s price to explode in value within the next few years. According to the predictions, Bitcoin’s value could increase by 192% between 2022 and 2025. And further increase by 493% from 2025 to 2030.
Ethereum’s Future Outlook
Being the largest altcoin by market cap, Ethereum’s price is predicted to spike from $2,921 to $3,255 to $3,589 by 2025. With the Blockchain’s many improvements, we expect many future integrations and partnerships in the Ethereum network.
Conclusion
Investing in cryptocurrency is good for you if you believe it’ll gain widespread adoption over time. However, ensure that you follow the best practices and understand why your chosen currency will withstand the test of time.
Furthermore, invest the amount you’re willing to lose. If, on the other hand, you can’t stomach the crypto risk, consider other ways to profit from the cryptocurrencies, such as buying crypto stock.
FAQ
Are stocks better than crypto?
It depends on your risk profile. Many people prefer stock markets because they’ve proven themselves for centuries, while crypto has only been around for a little over a decade.
Stocks are stable, whereas crypto is highly unstable. However, crypto has more potential for soaraway returns than the stock market. In the same vein, crypto is riskier.
Can you get rich with cryptocurrency?
Yes, you can get dizzying rich by investing in cryptocurrencies in 2023. But you could also lose all your money. Crypto assets are a high-risk and high-reward investment. Consider trading cryptocurrencies if you’re wondering how to make money with cryptocurrency in 2023.
Which coin will boom in 2023?
BTC, COMP, ETH, XRP, and Polygon are digital currencies we expect to perform well in 2023.
What will crypto be worth in 5 years?
Crypto is here to stay, and analysts forecast the prices will shoot up in a few years. One Bitcoin is expected to reach $79,193 – $100,000 by 2025. Some also predict the coin rising to $150,000 by 2030. Ethereum is expected to rise as high as $11,466.21 by 2030.
Is crypto going to go up in 2023?
Despite the downward market, Bitcoin’s deflationary nature may lead to price appreciation for long-term investors. While ETH is expected to surge ten times in 2023, Bitcoin is expected to cap around $100,000.