Cryptocurrency grabbed headlines last year when several altcoins including Bitcoin, Ethereum, and Litecoin rose to dizzying heights. Bitcoin, which was hovering around $800 at the beginning of last year finished it at a spectacular $17,000. As a result, more and more people are considering adding cryptocurrencies to their investment portfolio. But as an untested market, is cryptocurrency really worth it? Here are some pros and cons that will help straighten out this topical debate:
If you've always hated the fact that your bank charges you a monthly service fee simply for not having enough money in it, cryptocurrency is a breath of fresh air. Because cryptocurrencies can be transacted online without the need for a third-party, banks will be obsolete. And considering that close to four billion people across the globe have no bank account or have no access to banking services in general, a decentralized market like digital currencies can change how billions of people manage their personal finances.
With the continuing expanse of digital innovations, having a convenient way of paying people online is becoming increasingly essential. Cryptocurrency is making digital payments a viable method for purchasing goods and services. More and more companies, such as Overstock, Expedia, Subway, PayPal, and Shopify, are accepting cryptocurrencies as a form of payment.
With Bitcoin's price surging more than 2,000 percent seemingly overnight, it left a taste of bitterness in investors who weren't able to hitch a ride on the rocket. But even as the hype has started to dial down, the cryptocurrency market still maintains a high daily trading volume, which offers many opportunities to profit from. Altcoins, or coins that were created as an alternative to Bitcoin, can jump hundreds of percentage points in any given day. Many of them are cheap, in the range of a few cents, which means even a hundred percent jump with a $100 investment can be quite significant.
Ease of Transactions
Simply open a broker account, like you would with other traditional financial markets, and start buying and selling cryptocurrencies. The only nuisance with cryptocurrency investing, however, is that brokers carry only a limited set of coins, so you'll have to create multiple accounts with different brokers just to be able to invest in the coins you want. This can be a taxing process, considering the hoops you have to jump through to get your account signed and verified. That being said, buying cryptocurrencies is quick and effortless once you have an account. Mitigate risk by using tried and tested strategies, such as value investing, hedging, and collar strategies.
The Other Side of the Coin
While there are more pros than cons when it comes to cryptocurrencies, it's still a relatively nascent and therefore imperfect financial instrument to invest in. For starters, many of the altcoins you see today are being pumped and dumped on inexperienced investors. Currently, there are more than 1,500 altcoins that are recognized by Coin Market Cap. Many of these coins bear no real value nor do they have any future as a stable currency.
Cryptocurrency investing is also expensive. The fees involved will depend on the broker you use, the payment method you use to withdraw or deposit, and the amount of coins you buy. For instance, buying 1,000 XRP coins on BitStamp can cost you $50 to $100 in commission fees alone. That's a whopping 10 percent of your initial investment. To make matters worse, 5 to 15 percent is charged from your account when withdrawing it back to your linked bank account. Fortunately, there are ways to avoid paying fees when investing in cryptocurrency.
The answer depends on how you perceive Bitcoins and cryptocurrencies in general. If you believe there is a future wherein cryptocurrencies are the main form of payment for anything and everything, then by all means invest some of your capital on cryptocurrencies. Your risk tolerance will also play a huge role. Since altcoins are volatile, you should be okay with the idea that your investments today might be wiped out by tomorrow.