Cryptocurrencies have had a phenomenal rise in recognition and value. That being said, can it be considered as an asset worthy of “investment?
The difference between “investing” and “trading” cryptocurrencies
Although both trading and investing involve extracting profits from financial markets, they are polar opposites in terms of the methodology. In short, investing is considered a method of deriving profits over long term performance of a particular asset within the financial markets. It requires a fundamental analysis of the asset’s performance profile whereas trading consists of analyzing short-term market performance. Essentially, investing, in most instances, does not require a hands-on /immediate approach to decision making whereas trading requires more time and more immediate action.
Naturally, trading may involve higher risks but greater profits over a shorter period of time and investments may involve consistent profits over a longer period of time. In some instances Investments, through obtaining dividends, re-investing and active profiling will allow one to gain greater consistent profits. After these explanations the question that many ask is whether or not you can investing in cryptocurrency is possible or even advisable. Learn more about how cryptocurrencies can be traded here.
Investing in digital currency
Investing in cryptocurrency can be tricky, especially at this early stage when cryptocurrency and the technology underpinning it (blockchain) is referred to as “disruptive”. With the likes of Jamie Dimon of JPMorgan Chase & Co dismissing cryptocurrency, it is extremely difficult to justify whether cryptocurrency is at a stage where institutional investment can be a reality. Ultimately, cryptocoin value is volatile and to pin point which cryptocurrency to invest in is a shot in the dark and purely based on speculation. This is not to say that it is not possible to “invest” in cryptocurrency.
How to invest in cryptocurrency
As a point to note, we do not provide investment advice however we are inclined to share how we go about “investing” in cryptocurrency. It is our pleasure to share our views with you and ultimately the decision rests with you as whether our views make sense and whether our views assist you in how to distribute your funds responsibly.
Lets go back to fundamentals of investing. We provided terms such as “long-term”, “consistent profits”, and “asset performance profile”. When it comes to investing in stocks, we look at the company’s previous performance: have they been consistently profitable, what are their management projections, are they innovative, do they remain competitive and do they operate legitimately as far as their financials and public profiles are concerned. At the end of the day, each company aims to do well and grow as a business. Investing in stocks, naturally has an upward bias and all investors would be inclined to look for indications that stock prices will gradually grow, which in turn grow their investments and provide dividend returns.
Another form of investing would be in commodities such as gold because of its lack of volatility and its movement during times of geopolitical tension. Typically, geopolitical tension may cause volatility in a country currency with the result that the currency may lose value. People look to store their value in gold because it remains relatively consistent during such times and even raises in value.
Applying these concepts to cryptocurrencies proves to be a difficult task. Cryptocurrency is volatile – it is at an extremely young stage and institutional acceptance of its viability is still uncertain. There is no denying that the technology behind it is revolutionary and, as a result, its existence will continue. The future of cryptocurrency is bright, however, it remains imperative that you do your research before considering a cryptocurrency as an investment. Apply the same analytical principles to each and every cryptocurrency and take into account how institutional involvement in the future may effect your investment.
- With information at your fingertips you can still create a list of digital currencies to chose from.
- Before you decide which is the best cryptocurrency investment or which cryptocurrency to invest in, consider the cryptocurrency’s profile:
- What purpose does the cryptocurrency serve?
- How many people have adopted the cryptocurrency?
- How is the cryptocurrency evolving?
- Where to buy cryptocurrency?
Our view for the time being is that you can make an informed decision as to whether or not you choose to hold a cryptocurrency for investment purposes. But through this decision making, you must acknowledge that your decision is long term and that you have allotted enough funds to allow the cryptocurrency to grow to a projected long term value that is greater than its current value.
Is Bitcoin a good investment?
Many ask “is Bitcoin the best cryptocurrency investment”. Facing facts, Bitcoin was the first to create this concept of cryptocurrency. Bitcoin purists will maintain that Bitcoin will always be the original cryptocurrency and all others are referred to as “altcoins”. From a market perspective Bitcoin dominates in value. We chose to look further than just market dominance. For many, the purchase of an entire Bitcoin is impossible due to its massive valuation, therefore you need to consider its growth potential and compare it to that of other cryptocurrencies. Its growth potential is purely speculative and one needs to conduct more research on how innovative Bitcoin continues to remain. It is important to identify whether technological improvements to Bitcoin’s existence is contributing to its increasing value. Wider, institutional acceptance will also play a role in its valuation.
From a security perspective, due to Bitcoin’s wide recognition its acceptance and viability may be a factor to consider.
So is Bitcoin a good investment? Our belief and our simple answer is yes, for the time being. However, risk must always be assessed and at no point is any investment a “good” investment when money or funds which you cannot afford to lose have been placed in such an investment. We also believe strongly in spreading risk – from an investment perspective we believe that investment capital should be split in order to maximize growth of a portfolio and minimize loss at the same time.
Beware of “Investment scams”
We have entered in a cryptocurrency frenzy and it is important to recognize that there will be good players and bad players. Ponzi-schemes are going to be rife and around every corner – everyone is looking to make a “quick buck” regardless as to whether an individual stands to lose their entire livelihood in pursuance of a legitimate means to grow their funds.
We have created a security checklist for you to consider before accepting a cryptocurrency “investment”:
- Who is the source that is offering the service?
- Where do they come from?
- Are they regulated?
- How long have they been established?
- Who has recommended them?
- What are they offering?
- Are they offering an actual cryptocurrency?
- Do you receive a “Bonus” at any stage? if so, stay far away – Money is not given for free and there is always a catch that limits usage or withdrawal of your funds
- Do you have to refer their services to more participants in order to derive any benefit? Again, stay far away as these are illegal in many nations.
- Do you have access to your funds? If so, when, how, and what are requirements in order for you to have access? With cryptocurrencies being so young and volatility being great, you should have access almost immediately in order to avoid excessive loss.
Read about the different types of cryptocurrency wallets that can be used to store your digital currencies.