Those who believe that cryptocurrency is all the rage only temporarily may be surprised by the development of the industry. There are a few things about investing in cryptocurrencies that are worth highlighting.
Cryptocurrencies are a risky investment
Some investment experts, along with well-known investors such as Warren Buffett, Charlie Munger and T. Boone Pickens,
express reluctance towards cryptocurrencies.
"There are practically no investment strategies that would be worse ideas than buying crypto currency. [...]There is no hidden value in bitcoins, and yet profiteers buy them with hope that someone will come and pay for it more. Contrary to traditional companies, there is no other way to price cryptocurrencies than to make it with the usa of a greater fool theory"
says Robert Johnson, a professor of finance at Creighton University in Nebraska.
The cryptocurrency market is very unstable in its prices. For instance, Bitcoin's price has changed drastically as in 2017
its value increased from several hundred dollars to over USD 17,000
. It is impossible to determine whether the BTC value will increase or decrease in the future. There are over 200 different coins
on the market of which prices are also unpredictable. Any investor who feels uncomfortable due to high volatility and risk should rethink it if cryptocurrencies are for him or not. The same applies to those who can not afford to lose their entire investment. But Russell Korus
, the co-founder and CEO of EZ Exchange in Toronto
, claims, that investors who want to invest in cryptocurrencies and at the same time avoid too much risk should focus exactly on bitcoins. The oldest and most popular cryptocurrency has repeatedly demonstrated resistance to technological threats, social conflicts and attempts to intervene by the government.
Cryptocurrencies are not permanent
Another issue that needs to be discussed is the durability of cryptographic assets. Because of the fact, that cryptocurrencies are virtual money and do not have a central warehouse, it is possible to entirely delete the account balance. A computer failure, without a previously made backup copy, can destroy the cryptocurrency supply. If the user loses private keys, the cryptocurrency is unrecoverable. Scammers can also take control over someone's mobile account by impersonating the account owner.
How to minimize the risk
To minimize the risk of a large loss, an investment of only small amount of money in cryptocurrencies is an optimal choice. Mike Alfred, the co-founder and CEO of Digital Assets Data in Denver
, believes that every investor should own up to 5% of bitcoin assets. Of a similar opinion is David Tawil, the president of Maglan Capital,
who recommends that investors allocate from 2% to 3% of funds for cryptographic assets. There is a growing number of investors, advisers and ordinary people who think that the digital currency will change financial services. Tawil is convinced of the influence that cryptocurrencies have, but he is not sure which currency will be the dominant one. While bitcoin is a clear leader now, there is no guarantee which digital assets will be accepted in the end.
Money transfers currently require the participation of another portal or company. It can be a bank, credit card, PayPal or other broker. Supporters of cryptocurrencies expect that this industry will facilitate the direct transfer between the two parties and that no agent will be needed. The transaction is based on private and public keys, which reduces the cost of handling fees charged by banks and financial institutions for cash transfers. Widely adopted blockchain technology stores an online transaction book and reduces the threat of hackers - each block must be verified by the books of each user on the market.
Governments interested in cryptocurrencies
Two draft laws supporting digital currency have recently been introduced into the US House of Representatives.
The proposed regulations of these two legal acts are aimed at cryptocurrencies control and protecting consumers. And this is just one of many examples of the interest that government have in cryptocurrencies.
After reading the above facts about cryptocurrencies, the conclusion is clear. The investment in cryptocurrencies should be made in a thoughtful manner and with risks of losing profits taken into account. Even with the strongest currency, bitcoin
, there is always a risk of failure because the cryptocurrency market is unpredictable. It is optimal to invest in a small part of cryptocurrencies only, however, and thus minimize the possibility of loses. In addition, there are many financial advisers who will help with the appropriate investment and, lastly, there will be no more agents in the transactions processes.