How Does Cryptocurrency Impact Investing?
Is It Wise to Invest In Bitcoin, Dogecoin and Other Cryptocurrencies?
How Did Cryptocurrencies Begin?
Bitcoin (BTC) is the pioneer digital currency that started the crypto trend in January 2009.
The decentralized authority (i.e. not controlled by multiple authorities) cryptocurrency is composed of computers that run and store its blockchain (i.e. a collection of each transaction made through Bitcoin that can be witnessed live).
Bitcoin was created to be a secondary currency to government currency, yet it is mostly available online and cannot be held physically. The digital currency is also not recognized as legal tender, yet some small and major businesses (like Microsoft and Starbucks) accept it.
Since its origin, Bitcoin has created an entire market that provides investors with benefits such as ease of access into the market, and low transaction fees compared to other types of assets in the market.
While Bitcoin is the oldest and most popular digital currency on the market today, there are other emerging cryptocurrencies like Ethereum (ETH), Dogecoin (DOGE) and Binance Coin (BNB).
How Do Cryptocurrencies Affect The Market Now (Cons & Pros)?
Currently, there is at least $2 trillion invested in cryptocurrencies.
With an overwhelming surge in the cryptocurrency craze, how the market is affected by the digital currency may leave room for worry about a possible bubble.
However, there are always cons and pros, so let’s start with the bad news:
Cons of cryptocurrency:
High volatility: Digital currency’s value can fluctuate at any given time, making investing very risky.
Complex UI (User Interface): Because digital currency is heavily reliant on technical knowledge (i.e. mining and other computer science), investing in cryptocurrency can be challenging to new and experienced investors.
So, what’s the good news about digital currency?
Pros of cryptocurrency:
Inflation-proof: Due to the decentralization of digital currency, a growing demand in cryptocurrency can result in a growing value. This helps cryptocurrency keep up with market value and reduce the risk of inflation.
Low fees: Because digital currency isn’t regulated by a head authority, the transaction fees of trading digital currency is very low, and in some cases free.
Should You Invest In Cryptocurrencies?
Investing in cryptocurrencies can be a great way to increase your income or build up your savings—but proceed with caution.
If you’re new to investing or new to digital currencies, investing in cryptocurrencies should be about what works best for you and your finances—and not just what is trendy.
Because cryptocurrencies can be volatile, it’s important that when selecting a digital currency to invest in that you…
Understand the asset with your own research.
Consider your personal risk tolerance and financial goals.
Consult with a trusted Financial Planner for investment strategies and guidance.
If you’re ready to invest in cryptocurrencies, open an exchange account via Robinhood or Coinbase. These accounts help you to trade and sell cryptocurrencies with easy-to-use UI. From there, you can manage your investment plan and determine how much of your portfolio should be made up of cryptocurrencies.
While digital currency is a thriving market, it is still a new market. Investors should be wary of pricing and risk, as well as keep their financial needs at the forefront of their investing decisions.
Citations:
Blumberg, A., & Dixon, R. (n.d.). Digital Assets - Crypto Coming of Age [Infographic]. In Digital Assets - Crypto Coming of Age (pp. 1–18).
Marquit, M. (2021, May 4). Which Cryptocurrency Should You Invest In? The Balance. https://www.thebalance.com/best-cryptocurrency-to-invest-in-5079977
Menton, J., & Harris, C. (2021, May 9). Elon Musk, Snoop Dogg and Mark Cuban love Dogecoin. Should you? How to stay safe when investing in cryptocurrency. USA Today. https://eu.usatoday.com/in-depth/money/investing/2021/05/09/dogecoin-bitcoin-ethereum-cryptocurrency-investment-elon-musk/4976894001/
Frankenfield, J. (2021, February 18). Bitcoin. Investopedia. https://www.investopedia.com/terms/b/bitcoin.asp
