Cryptocurrency, also called virtual currency, is digital money. That means there are no physical coins or bills – it’s all online. You can make a crypto investment. For example, when you make a transfer to someone on the internet without an intermediary, such as a bank. The crypto investment has as its basis with cryptocurrencies like Bitcoin and Ether. But new cryptocurrencies continue appearing on the market.
People could use cryptocurrencies to make quick payments and to avoid transaction fees. Some people buy or sell cryptocurrencies as an investment. As a result, they are waiting for an increase in their value. You can get cryptocurrencies with a credit card or, in some cases, through a process called “mining.” Crypto investment uses cryptocurrencies stored in a digital wallet or purse. In other words, either online, on your computer, or another physical medium.
If you’re going to make a crypto investment, it’s essential to do some research before you hand over any cash. Below, we’ll explore what to know about crypto investment.
What you should take into account before you dive in crypto investment
As with any other venture, before making a crypto investment, you have to know what the risks are. And learn how to spot a scam. Here’s a list of some of the things to watch out for when considering your options:
1. Ask yourself why you are going to venture into crypto-investment
According to Investopedia’s editor Nathan Reiff, ask yourself what you’re doing it. Reiff invites potential investors to ask themselves the following questions:
- “Are you interested because of the trendiness of the crypto craze?”
- “Is there a more compelling reason for an investment in one or more specific digital tokens?”
In short, it all depends on your personal interests in the field of investments. Also, the crypto investment may make more sense for some people than for others. Take your time, don’t hurry!
2. No one can guarantee that you will make money
Anyone who promises you a guaranteed return or dividend is a con artist. Because an investment is well known or endorsed by a celebrity doesn’t mean it’s a good or safe thing. That applies to crypto investment as well as more traditional investments. Don’t invest money you can’t afford to lose!
3. The value of a cryptocurrency changes with frequency
The value of a cryptocurrency can change hourly. An investment that worth thousands of dollars today could be worth hundreds tomorrow. If the value goes down, there is no guarantee that it will go back up.
4. Crypto investments are not backed by a government
Cryptocurrencies are not insured by the government like bank deposits are in the USA. That is to say, cryptocurrencies stored online do not have the same protection as money in the bank. So, if you store a cryptocurrency in a wallet or digital wallet provided by a company, keep in mind:
- The company could stop operations or suffers a cyber-attack.
- The government may not be able to act and help you get the money back as it could with money held in banks or credit unions.
5. Not all cryptocurrencies – or companies promoting cryptocurrencies – are the same
Look at the statements made by companies that are promoting cryptocurrencies. Search the internet by entering the name of the company and the cryptocurrency. And add words like “review”, “scam” or “complaint”. If your search is in Spanish, add words like “comentario“, “estafa” or “queja“.
In that way, you can discover if your hypothetical crypto investment could be at some risk. Again: be patient and take enough time to make your research.
Pros and cons of the crypto investments
The main benefits are decentralization, and not depending on any bank. Because only the buyer has the password to access. Besides, the fast and cost-free delivery anywhere in the world. And the impossibility of counterfeiting.
Scarcity is another advantage, as the cryptocurrency is not subject to inflation. Bitcoin (not so the rest) has a limit to 21 million (so far* some say near to 18.6 million). And it establishes that the cap will reach almost 2140, the date set by the creator. The little more than two million bitcoins that remain will be mined at a much slower rate than until now.
Among the risks of crypto investment is volatility. That is to say, strong rises and falls in value that can cause large losses in hours. But there are also stable cryptocurrencies that have parity with the dollar or the euro. For example, the USD Coin (USDC) or cryptocurrencies as DAI.
Another not inconsiderable one is the loss of the wallet key. For example, according to Chainalysis bitcoins losses are close to 17% and 23%. The press has reported several cases. For instance, a programmer from San Francisco lost the password of the wallet. He stored in that wallet 7,002 bitcoins, which today amount to more than 220 million euros.
Also, you can take into account the risk of scams associated with cryptocurrencies. For instance, the report of Cipher Trace, about the tracking of digital currencies. It reveals that cybercriminals have pocketed more than $4.26 billion (€3.501 billion) in 2020.
Best crypto investments based on market capitalization
According to Nerdwallet.com, these are the best 10 choices* in crypto investment. That was tracking by CoinMarketCap, a cryptocurrency data, and analytics provider:
Cryptocurrency Market Capitalization
- Bitcoin $563.8 billion
- Ethereum $142.9 billion
- Tether $25.2 billion
- Polkadot $13.9 billion
- XRP $11.4 billion
- Cardano $9.7 billion
- Chainlink $8.3 billion
- Litecoin $8.1 billion
- Bitcoin Cash $7 billion
- Binance Coin $6.2 billion
* Data current as of Jan. 27, 2021.
In conclusion, crypto investments depend on a big part of the stability of the currencies. Also, both, merchants and consumers, can determine what a fair price is for goods. But the best thing to do is to consult with your trusted broker before deciding on this type of investment.