It is fast becoming the case that cryptocurrencies are not so much the unknown new kid on the block. Almost everyone knows about them, and even more, have a working knowledge of what they are and how they work.
But does this mean that it is a valuable investment? But as the nature of cryptocurrency is so vastly different from traditional investments, they present a real risk and are notoriously difficult to understand.
The Value of Trading and Investing in Cryptocurrency
Here we will look at the various aspects of cryptocurrency and the value of trading and investing in it. We cannot lay claim to a guide allowing full understanding of cryptocurrency as it such a new concept, and a complicated one at that.
There is, and always will be risks associated with any new things.
It Gives You an Independent Place to Keep Wealth
We’ve all heard of the phrase concerning not placing all of your eggs in one basket, well this is a great analogy for what investing in crypto does for your finances.
Consider the possibility of something happening to your bank? OK, it’s a long shot and until now governments have tended to prop banks up when they fail, but will this happen forever?
Having an amount of your cash held in an alternative currency will protect you in case of the worst happening. It is easier than ever to create a Bitcoin wallet and transfer an amount of your money to this denomination, and the advantage of this over other types of investment is that funds can be spent directly from your crypto wallet.
Being a new industry there are so many people looking to capitalize on the rush to get involved in it. You will find that there are countless websites offering exchange services to convert your regular dollars, pounds, and euros into various cryptocurrencies.
It is essential to find a reputable exchange site to ensure you will not end up finding they have folded and disappeared along with your funds.
This is tricky to work out, as the unregulated nature of cryptocurrencies ensures you are not offered the usual protections you would expect with traditional financial institutions.
One of the major reasons that cryptocurrency does fall under the same protections as regular investments are that they are not usually considered currency under law.
Take the UK, as an example, there has been a court ruling which decrees Bitcoin (and presumably other cryptocurrencies by extension) as property rather than currency.
Cryptocurrency Follows Different Trends
Since each cryptocurrency is not controlled by a central bank it is less susceptible to recessions and national economic crises.
You may find it a useful exercise if you find many of your traditional investments struggling to see if alternative options such as these are trending upwards. Since it is easy to buy and sell such currencies, you can mix and match and swap investments in real-time.
A wise investor can keep tabs on developments and make a good profit. Of course, any gains can be as quickly lost as they are made, so take care and don’t invest what you can’t afford. Sometimes the timing of these transactions leaves little margin for error.
It is staggering how quickly the value can switch from high to low. It could only take a matter of an hour to miss the window for a vast profit and be left with an investment that has become ruinous.
For some of the newer and more obscure cryptocurrencies, a fall in a currency may never rise again, meaning it’s not simply a case of waiting it out.
At this point, the investor needs to decide if it’s time to cut their losses, and even then, you could find the value inexplicably rise again. Anyone who confidently proclaims they can accurately predict the trends of any given cryptocurrency should be taken with a degree of skepticism.
Ease of International Transfer
With no central bank in control, as we’ve already discussed, cryptocurrencies are the first truly international ones. The currency is not being manipulated through political decisions such as quantitative easing to help a particular economy with the inevitable result in a devaluation.
It is also the only type of currency that you don’t need to factor in exchange rates when trading internationally. The question does remain around vast fluctuation in cryptocurrencies? It has been seen that the value of these coins not only fluctuates greatly but in a short space of time.
This would just never happen with a national currency as the appropriate government would not allow it. If dramatic changes constantly happen in an economy this shows great weakness.
Stability is essential in a functioning economy, wages need to be able to roughly cover the same level of rent or mortgage payments every month, grocery bills need to be covered and other basics.
This is why cryptocurrency will both remain an attractive investment opportunity, but never truly replace traditional currencies.
When to Buy
The value of Investing in anything, cryptocurrency or otherwise, essentially depends on timing and circumstance.
There is seldom such a thing as a bad investment, just a poorly timed investment. Take the example of a large store going into administration where common logic would say not to invest in a failing business, especially one to this degree, but look at the details, is there a rescue package, is a buyout imminent?
We know that buying at the time when everyone else is selling can be a wise move if you have done your research properly.
In conclusion trading and investing in cryptocurrency is a risk, just as any investment can be a risk. Cryptocurrency poses more of a risk due to the unregulated nature of the coin. There is no automatic legal route of appeal if something happens to the funds themselves.
In addition to this issue, the volatile nature of cryptocurrencies makes them risky to hold funds in. This means they are completely unsuitable as a savings vehicle, and even short-term value can drop, so care should be taken if using a cryptocurrency as your main financial account.
This volatility can also be positive for savvy investors willing to take a risk to seek a short-term gain.
National governments have been wary of recognizing cryptocurrency as a valid financial option, and when there has been any official legislation or court rulings it has overwhelmingly been to ban, suppress or delegitimize the status of cryptocurrency.
This article has been contributed on behalf of Paxful. However, the information provided herein is not and is not intended to be, investment, financial, or other advice.