What is Cryptocurrency? To keep it nice and simple, cryptocurrencies are a form of digital assets that run on blockchain technology. Similar to how you send fiat currency digitally through online banking, cryptocurrencies work in the same way, but have several differences. As crypto gets more popular and more use cases are developed, mainstream adoption is currently underway and expected to continue to grow exponentially.
Unless you’ve been living under a rock for the past 12 years you’ve heard of Bitcoin, the most popular crypto in the world holding the largest market cap (Currently at $725 Billion) but many people are unaware of the thousands of other crypto projects within the space that are changing the way we use money and the internet overall.
With the realised financial gains for crypto investors in the billions, since 2009 when bitcoin was first released at $0.0008 and currently holding a value of $39,000.00, Bitcoin and cryptocurrencies have created millionaires and billionaires who would have never realised such returns through investing in traditional markets.
The price of Bitcoin has quadrupled in last year’s final quarter, this increase came with a lot of attention from prominent investors such as Elon Musk, Michael Saylor and Mark Cuban as well as the media for both Bitcoin and other cryptocurrencies in the market. In addition, multiple large companies such as Square and PayPal have begun accepting payments in Bitcoin and other cryptocurrencies. Here, we look at some of the potential advantages and disadvantages:
High returns potential
If you had invested $100 in the S&P 500 in the beginning of 2015, you would have $210.17 at the beginning of 2021, assuming you reinvest all dividends (officaldata.org). This is a return on investment of 110.17% ; over the same time period the price of bitcoin in USD has compounded at an annualised growth rate of 131.5% which is well over a 600% increase over 5 years.
Protection from fiat currency and inflation
After the 2008 Global Financial Crisis, many central banks from around the world started using unorthodox monetary policies that have had catastrophic consequences on the worlds population. Believers in Crypto understand that cryptocurrencies are a hedge against inflation and blockchain technology has the potential to change the world for the better. Peer to peer transactions via the block, eliminate the need for a “middle man” and can bring banking to the unbanked all around the world.
High potential for losses
Cryptocurrencies have shown to be extremely volatile, which make them quite a high risk. Even though cryptocurrencies, such as Bitcoin and Ethereum have performed very well throughout the years, there’s been a lot of investors who have lost substantial amounts due to the fluctuation in prices.
No backing and regulation
Since cryptocurrencies are quite new and the majority of the public aren’t educated in what it is and what they do, it has given the currency potential to be exploited by criminals as a means to scam unwary investors and launder money.
This is just a small insight to cryptocurrencies! The overall decision on whether or not to add cryptocurrencies to an investment portfolio, is based on their assessment of the balance of advantages and disadvantages; the main ones of which we have tried to highlight in this blog.
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