To BTC or not to BTC: Pros and Cons of Crypto Investments

Jul 29, 2020 03:33 AM ET
To BTC or not to BTC: Pros and Cons of Crypto Investments

Early adopters who invested in the crypto market have become highly successful and their small stakes have ballooned into huge fortunes. Many of them were able to realize the potential of cryptocurrencies by investing their money into it. 

Over time, cryptocurrencies have become widely accepted as a viable investment. Regardless of whether you have a very small stake or huge amounts of capital, investing in cryptocurrencies can be a profitable venture. In this article, we take a look at some of the pros and cons that are related to crypto investments. 

Pros of Crypto Investments

Let us begin with the benefits that are associated with crypto investments. Be it their huge upside potential, instant accessibility, increased liquidity, or complete transparency, there are multiple benefits linked to crypto investments that one can be excited about.

Massive Returns

Massive Returns

Perhaps the biggest advantage of crypto investments is the massive return potential that they offer. Prior to the recent decline, Bitcoin had seen a massive appreciation in its value. One statistic highlights that anyone who had invested $1000 in Bitcoin at its inception would be looking at returns worth $400,000 today. This fact is quite astonishing given that Bitcoin only began to gain momentum in 2016. 

Many experts believe that the recent Bitcoin decline will subside soon, followed by a huge appreciation over the next 5 years. Bitcoin, of course, is only one example. There are various other cryptocurrencies like Ripple, Dash, Ethereum, Chainlink, and many more that are witnessing significant gains. The potential to reap massive returns is still a high probability. 

Instant Accessibility

Buying and spending cryptocurrencies are possible at any time of the day as long as another user is active. In fact, you don’t even need a computer for it. Everything can be managed from your smartphone itself, which is a great opportunity for investors to access their finances and make real-time decisions on the go. 

This is possible because there is no central authority that governs the transaction. The peer-to-peer transaction is possible no matter where the recipient is in the world. Such instant accessibility is being used to provide opportunities for those who have not been able to become online consumers. 

Increased Liquidity

Liquidity is one aspect that you should look at while investing in anything. It measures the ease with which one can buy or sell an asset. For instance, if you have invested in a blue-chip stock, such as Walmart, and are looking to sell it the next minute, you should be able to do so without much loss. This is because the Equities market is highly liquid in nature.

The major cryptocurrencies have a market place, which assists in trade. Some of these include the following:

  • Coinbase

  • Bitstamp

  • Binfinex

  • Kraken

  • Binance

There are many others like them and if you’re trading or investing in major cryptocurrencies, you should find the markets quite liquid for those instruments. This allows traders to buy and sell on a whim without much slippage. 

Unparalleled Transparency

Many cryptocurrencies like Bitcoin utilize blockchain technology, which posts all the transactions made with it. This makes it completely transparent. All the transactions are open to public scrutiny and the ledger can be verified anytime. Such unparalleled transparency is viewed by many investors to be an important feature of cryptocurrencies. 

But, not all cryptocurrencies use such a public ledger system. Ultimately, it is up to you to determine how important this feature is for you. All new ICOs (Initial Coin Offerings) provide in-depth prospectus about their currencies which make it easy for investors to compare and contrast between the offerings and find the ones that suit their preferences. 

Cons of Crypto Investments

Now, let us take a look at some potential drawbacks of investing in cryptocurrencies. These are some of the pitfalls and disadvantages that an investor must be aware of.

Potential Shortage of Resources

In the way a startup can run short of resources and becomes ineffective at continuing operations, cryptocurrencies too can have the doors close on them if they are unable to raise enough money. There can be a lack of resources if the startup ends up spending more than it should. This is the reason why many cryptocurrencies are raising money before ICO so as to have all the resources and demand for their currency.  

Increased Volatility and Uncertainty

Increased Volatility and Uncertainty

Cryptocurrencies have witnessed a steep rise and fall over the past few years. Their volatility can be both a boon and a bane. The upside of the volatility can be quite lucrative for investors. However, when the price plummets, the same volatility can become a major bane. 

Cryptocurrencies are, in fact, ten times more volatile than other instruments like stocks, gold, and other commodities. Uncertainty is one of the chief reasons for such erratic movements. Many believe that the cryptocurrency bubble is just waited to burst, while others have the firm belief that it is here to stay. In reality, there is no telling what might happen. Such uncertainty surrounding the instrument has been at the heart of what’s causing the up and down in the price values.  

Potential Mismanagement

Not all ICOs are created equal which is why investors must ensure that they find out who all are behind the new offerings before they invest. Many startups are run by a competent team with a vision and a goal, but many of them are also quite shady in their operations that one would want to stay away from. 

Of course, even popular firms can take steps that lead to potential mismanagement and a decline in the value of the cryptocurrency. Even though one can never be completely sure of the results while investing in ICOs, the more competent a team is, the better your chances of getting high returns on your investment. 

Security Concerns

As a crypto investor, security breaches should be your number one concern. In our day and age, traditional currencies are being challenged by virtual currencies that attract the attention of cybercriminals and hackers. This is one reason why even the best crypto trading exchanges do not insure virtual token for hacking. 

Security Concerns

Remember that cryptocurrencies, such as Bitcoin, are accessed via private keys that are a part of the digital wallet. Therefore, the primary goal should be to protect the key and wallet. Utilizing a cold storage wallet is one way by which investors can protect themselves against security breaches. This involves keeping your Bitcoins offline. Even though this is not completely foolproof, it is nevertheless a good preventive measure. 

Final Thoughts

There are various advantages and disadvantages associated with the cryptocurrency market. The chief benefit is that the returns are huge, even if we take the risks of uncertainty into consideration. Given the high liquidity, easy accessibility, and complete transparency, investing in cryptocurrencies seems like a viable endeavor. 

However, one must keep in mind some of the drawbacks that are linked to this market. Those who are willing to put their time in, do the research, and are courageous and confident enough to ride the tide can find themselves with a fortune.

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