It is possible to get filthy rich by investing in cryptocurrency -- merely it is also very possible that you lose all of your money. Investing in crypto assets is risky, but can be a expert investment if you practise it properly and as role of a diversified portfolio.
Cryptocurrency is a good investment if you want to gain direct exposure to the demand for digital currency. A safer but potentially less lucrative alternative is buying the stocks of companies with exposure to cryptocurrency.
Paradigm source: The Motley Fool
Let'southward examine the pros and cons of investing in cryptocurrency.
Is cryptocurrency safe?
Multiple factors bear witness that cryptocurrency is not always a safe investment. All the while, other signs are emerging that cryptocurrency is here to stay.
Cryptocurrency risks
Cryptocurrency exchanges, more so than stock exchanges, are vulnerable to existence hacked and becoming targets of other criminal activity. Security breaches have led to sizable losses for investors who accept had their digital currencies stolen, spurring many exchanges and third-party insurers to begin offering protection against hacks.
Safely storing cryptocurrencies is also more hard than owning stocks or bonds. Cryptocurrency exchanges such every bit
Coinbase
(NASDAQ:Money) brand it fairly easy to buy and sell crypto assets such as
Bitcoin
(CRYPTO:BTC) and
Ethereum
(CRYPTO:ETH), merely many people don't like to keep their digital avails on exchanges due to the risks of allowing any company to command admission to their avails.
Storing cryptocurrency on a centralized exchange means you don't have full control over your assets. An substitution could freeze your avails based on a government request, or the exchange could go bankrupt and you'd have no recourse to recover your coin.
Some cryptocurrency owners prefer offline "cold storage" options such as hardware wallets, but cold storage comes with its own set of challenges. The biggest is the risk of losing your private key; without a key, it's impossible to admission your cryptocurrency.
At that place's also no guarantee that a crypto project you invest in will succeed. Contest is trigger-happy amidst thousands of blockchain projects, and many projects are no more than scams. Only a small pct of cryptocurrency projects volition ultimately flourish.
Regulators may as well crack downwardly on the entire crypto industry, specially if governments view cryptocurrencies every bit a threat rather than an innovative engineering science.
The cutting-border technology elements of cryptocurrency likewise increase the risks for investors. Much of the tech is still beingness developed and is not yet extensively proven in real-world scenarios.
Cryptocurrency adoption
Despite the risks, cryptocurrencies and the blockchain industry are growing stronger. Much-needed financial infrastructure is existence congenital, and investors are increasingly able to access institutional-grade custody services. Professional and individual investors are gradually receiving the tools they demand to manage and safeguard their crypto assets.
Crypto futures markets are being established, and many companies are gaining direct exposure to the cryptocurrency sector. Financial giants such equally
Block
(NYSE:SQ) and
PayPal
(NASDAQ:PYPL) are making it easier to purchase and sell cryptocurrency on their pop platforms. Other companies, including Block, accept poured hundreds of millions of dollars into Bitcoin and other digital assets.
Tesla
(NASDAQ:TSLA) purchased $1.5 billion worth of Bitcoin in early 2021. By Feb 2022, the electric vehicle maker reported that it held nigh $2 billion of the cryptocurrency.
MicroStrategy(NASDAQ:MSTR) -- a business intelligence software visitor -- has been accumulating Bitcoin since 2020. It held $5.7 billion in the cryptocurrency by the terminate of 2021 and said it plans to buy more with excess cash generated from operations.
Although other factors nonetheless affect the riskiness of cryptocurrency, the increasing pace of adoption is a sign of a maturing manufacture. Individual investors and companies are seeking to gain direct exposure to cryptocurrency, considering information technology safe plenty for investing large sums of money.
Is crypto a skilful long-term investment?
Many cryptocurrencies such every bit Bitcoin and Ethereum are launched with lofty objectives, which may be achieved over long time horizons. While the success of whatsoever cryptocurrency project is not bodacious, early investors in a crypto project that reaches its goals can be richly rewarded over the long term.
For whatsoever cryptocurrency project, however, achieving widespread adoption is necessary to exist considered a long-term success.
Bitcoin as a long-term investment
Bitcoin, as the most widely known cryptocurrency, benefits from the network effect -- more than people want to own Bitcoin because Bitcoin is endemic by the most people. Bitcoin is currently viewed past many investors as "digital gold," merely it could also be used as a digital form of cash.
Bitcoin investors believe the cryptocurrency will gain value over the long term because the supply is fixed, dissimilar the supplies of fiat currencies such as the U.S. dollar or the Japanese yen. The supply of Bitcoin is capped at fewer than 21 million coins, while most currencies can be printed at the will of central bankers. Many investors expect Bitcoin to gain value every bit fiat currencies depreciate.
Those who are bullish virtually Bitcoin being extensively used as digital greenbacks believe information technology has the potential to go the first truly global currency.
Ethereum equally a long-term investment
Ether is the native coin of the Ethereum platform and can exist purchased by investors wishing to gain portfolio exposure to Ethereum. While Bitcoin can exist viewed as digital gold, Ethereum is edifice a global computing platform that supports many other cryptocurrencies and a massive ecosystem of decentralized applications ("dApps").
The large number of cryptocurrencies built on the Ethereum platform, plus the open up-source nature of dApps, creates opportunities for Ethereum to also benefit from the network effect and to create sustainable, long-term value. The Ethereum platform enables the utilise of "smart contracts," which execute automatically based on terms written directly into the contract lawmaking.
The Ethereum network collects Ether from users in commutation for executing smart contracts. Smart contract applied science has pregnant potential to disrupt massive industries such equally real estate and banking and also to create entirely new markets.
Equally the Ethereum platform becomes increasingly used worldwide, the Ether token increases in utility and value. Investors bullish on the long-term potential of the Ethereum platform can profit directly by owning Ether.
That's non to say Ethereum doesn't have competition. A number of "Ethereum Killers," including
Solana
(CRYPTO:SOL),
Polygon
(CRYPTO:MATIC), and
Barrage
(CRYPTO:AVAX), are all built to handle smart contracts and employ a blockchain system capable of processing more than transactions per 2d. The speed has the added advantage of being less expensive for users besides. But Ethereum is the near broadly adopted platform for using smart contracts.
Should you invest in cryptocurrency?
Owning some cryptocurrency tin can increment your portfolio's diversification since cryptocurrencies such as Bitcoin have historically shown few cost correlations with the U.S. stock market. If you believe that cryptocurrency usage will go increasingly widespread over time, so it probably makes sense for you to buy some crypto directly as part of a diversified portfolio. For every cryptocurrency that you invest in, exist sure to have an investment thesis as to why that currency will stand the exam of time. If you lot practice your research and learn as much as possible almost how to invest in cryptocurrency, you should be able to manage the investment risk as office of your overall portfolio.
If buying cryptocurrency seems also risky, you can consider other ways to potentially profit from the rising of cryptocurrencies. You can buy the stocks of companies such as Coinbase, Block, and PayPal, or you can invest in an exchange like
CME Group
(NASDAQ:CME), which facilitates crypto futures trading.
Expert Q&A
The Motley Fool: What advice would you give to someone interested in investing in blockchain engineering science?
Parlour:
Exist curious but besides be cautious. It is important to recognize that there is not a complete regulatory framework in this surface area. So, it is important to exercise your homework. First, consider the venue that you use to access the market. There are regulated crypto exchanges and trading places; however, there are also unregulated ones. Second, while most tokens are based on open-source code, information technology is not the example that they have the same disclosure regimes as bluish fleck stocks. So, be careful and investigate the nature of the underlying token. Note that in other countries (Canada, Europe), in that location are ETFs and ETPs that rails crypto portfolios; these have non received regulatory approval nonetheless in the U.S. If and when they are offered to consumers, these will be a low-cost way of accessing the crypto market, and and then someone else volition handle the market mechanics.
The Motley Fool: What advice would you give to someone interested in investing in blockchain engineering science?
Dr. Ozair:
Blockchain engineering is definitely the future. There is no escaping that. Nonetheless, it is hard to predict which projects will last and which volition fail and be forgotten.
Most blockchain applied science companies are in their early on, if non very early on, stages. Hence, investing in companies utilizing blockchain technologies has withal risks as investing in a showtime-upwards. And like in any start-up, the run a risk-reward ratio is loftier.
Therefore, learn most blockchain technology, practise a thorough due diligence on whatever project -- from its technology to business model to execution. Learn most the "problem" information technology is trying to solve and what solution it'south offering -- both from a technological perspective and a concern perspective.
There'southward a lot of potential with blockchain technology, simply the execution is in the details.
The Motley Fool: Which industries, other than finance, practice you think blockchain has the potential to disrupt?
Dr. Ozair:
The futurity that I accept been envisioning is that every product or service application we know today will run on some form of blockchain applied science. In other words, the "rails" of all products and services (i.e., the technology that "runs" these applications) will exist a type of DLT.
I truly believe that in 10 to 15 years, this would be feasible.
Like the internet, which has become a pivotal part of our everyday lives, and we cannot imagine life without it, so will DLT. When nosotros employ the cyberspace, we exercise non enquire ourselves – "How does it work?" or "Why should nosotros use information technology?" – we simply use it for the mobility, flexibility, efficiency and connectivity information technology provides. The COVID-nineteen pandemic has underscored the Cyberspace's benefits. It enabled us to connect to services, products and people and facilitated a smooth transition to a remote, contactless global economic system. Now Web 2.0 – Internet is evolving to Spider web iii.0 – Distributed Ledger Technology.
The Motley Fool: What innovations or trends in blockchain technology are you most excited near?
Dr. Ozair:
The ecosystem of blockchain applied science is evolving very rapidly. Every day (literally) you learn about new applications and new business concern use cases that accept utilized blockchain technology. It is truly – slowly but surely – beingness implemented in any industry and any "traditional" application. From finance to healthcare to retail to art to education, the implementations are boundless.
The true ability of blockchain applied science is its power to facilitate services to underserved communities and genuinely to democratize lodge. That was the premise of Bitcoin, when it was outset launched in Jan of 2009 – i.eastward., a peer-to-peer payment system, and nosotros somewhat lost focus on the master purpose of blockchain technology as" greed" got in the fashion.
The utilization of Decentralized Autonomous Arrangement (DAO) equally the governance of whatsoever blockchain organization and application, volition enable blockchain applications to provide the needs of the underserved communities, nationally and globally.
The Motley Fool: What advice would you give to someone interested in investing in blockchain technology?
Lenz:
Learn and keep learning. The developments in the infinite are happening at a rapid pace, so much so that new noesis is being generated constantly. Every bit a professor teaching blockchain, this is the hardest office, reinventing the course every semester, only it keeps my students and me as current as possible. This doesn't hateful neglecting base of operations noesis; having this is crucial, every bit well as some sense of the history to understand why developments have occurred at specific times.
Anders Bylund has positions in Bitcoin, Coinbase Global, Inc., Ethereum, Solana, and Tesla. The Motley Fool has positions in and recommends Avalanche, Bitcoin, Block, Inc., Coinbase Global, Inc., Ethereum, PayPal Holdings, Polygon, Solana, and Tesla. The Motley Fool recommends CME Grouping. The Motley Fool has a disclosure policy.
