Cryptocurrencies can take over traditional financial systems and restructure the financial world. Though still in its infancy stage, cryptocurrency is here long term. As an investor, you have chances of hefty returns if you are trading on transparent structures-that is, if you know how to invest and when. That said, every investment has its benefits and downside. Please keep reading to learn them before you decide to leap into the cryptocurrency world.
Advantages
Potential for high returns-high risk
There are no less than 10,000 cryptocurrencies on the market, and each behaves differently. However, they all have one underlying factor-the tendency of their value to spike and drop. Their value depends on the supply from miners and demand from buyers. The robust change in supply results in hefty returns. For example, investors who bought Ethereum between July 2021 and December 2021 got a big pay as the price doubled.
Naturally Safe
The security of cryptocurrencies is not on the currencies but the infrastructure supporting them. In this case, the blockchain is a decentralized data-storage ledger that any transaction undertaken can be tracked. Any entry into the blockchain is stored permanently. Since the blockchain is stored across multiple computers, no hacker can access the entire system at once. The information in there is safe for good.
Compared to traditional banks-it’s a more transparent system
Most of the transactions made in a financial institution go through processes that involve third parties. This means you, as the investor, are placing your trust in a chain of intermediaries. Cryptocurrencies and blockchain offer a better alternative. They are accessible to anyone, anywhere, and you can make transactions without intermediaries.
Crypto is open 24hrs
Buying or selling cryptocurrencies is open around the clock. You don’t have to wait for any exchange such as NASDAQ or NYSE to start trading. This is a significant advantage that cryptocurrencies have over regular stock exchanges. The impact has made the banks start considering extending their trading hours. Investors have cryptocurrencies to generate returns out of regular banking hours.
No inflation
The price of cryptocurrencies does not reflect national demand or inflation. It shows the demand globally as it is not based on a single currency. But can cryptocurrencies get affected by inflation? As an investor, you are safe on a more significant percentage. The amount of coins is capped and can’t get out of control, hence no inflation. For example, bitcoin has an overall cap while ethereum has an annual cap. This measure keeps inflation away.
Disadvantages
Understanding is time-consuming
It takes a while to understand cryptocurrencies, especially if you are not a digital native. Not to mention the broader system of the blockchain. Then it’s risky trying to invest in something you don’t fully understand. Though there is no shortage of inline resources on cryptocurrency, you need to dedicate time to know how it works, pros and cons.
It’s an erratic investment.
At one point, the cryptocurrency price can go to a dizzying high, which is fantastic to investors but can also come crashing down just as quickly. If you are looking for stability in your returns, crypto is not the best option. Crypto marketing is affected by price fluctuations because of its small nature and reliance on speculation. This erratic movement can mess up the value of coins and is the major downside of cryptocurrency.
Still at infancy
Though cryptocurrency is quickly gaining ground in the financial sector, it’s worth noting they have only been in existence for slightly over a decade. Compared to other markets which have been around for a century, nobody knows the future of crypto. It takes a brave investor to get into crypto’s uncharted waters.
Cryptocurrency will give you high returns if you invest and sell at the right time. It’s also safe against inflation, open 24hrs, and the transactions are more transparent. On the downside, the value of the coins is volatile, and it takes time for you to understand the whole concept of crypto before investing.