Top 10 Benefits of Investing in Cryptocurrency
Cryptocurrency has grown increasingly popular, making it an attractive investment opportunity. But before making their decision, investors need to gain an understanding of its fundamentals before taking a plunge into investing.
Starting, it's essential to understand what differentiates cryptocurrency from other assets like stocks and bonds. They typically exhibit a lower correlation between price changes, offering diversification potential.
1. High Returns
Cryptocurrency is an emerging asset class offering high returns to investors (although results may differ). Furthermore, since cryptocurrency trades around the clock without direct correlation to stock markets or traditional investment portfolios, cryptocurrencies may make for an ideal addition.
However, investing in cryptocurrency requires an immense level of discipline. Coin values may fluctuate greatly, and you must avoid being drawn into checking them daily (otherwise, you could end up with severe stomach acid and grey hair before you know it!).
Financial experts typically recommend keeping the riskier investments of your portfolio to less than 10%, though cryptocurrency could offer unique returns that you simply won't find elsewhere.
2. High Growth
As more people jump on board the cryptocurrency train, it is essential to remember that all investments involve risk. Before investing in crypto assets, it is wise to assess your tolerance for risk, time horizon and diversification strategy, as these may all factor into making informed decisions about which investment options would work for you.
Cryptocurrencies offer investors high returns. Bitcoin has returned more than 1,416% since 2012 compared with just 67% from stocks in the same timeframe.
So, it's understandable why some investors consider adding cryptocurrency investments to their portfolios. Before doing so, however, it is vital that all your finances are in order and you have an emergency fund and manageable debt load in place - this can reduce risk while increasing chances for long-term success. Keep in mind that any profits gained by selling cryptocurrency may require capital gains tax payments.
3. Decentralized
Cryptocurrency and blockchains allow individuals and businesses to conduct financial transactions directly with each other without depending on third-party intermediaries - this can be especially helpful for protecting themselves against theft or fraud.
Investing in cryptocurrency can also help companies cut transaction fees by forgoing credit cards or other traditional payment methods, thus increasing their profit margins.
Cryptocurrencies' decentralized nature enables them to increase transparency and efficiency within business networks, thanks to unalterable blockchains designed for record-keeping purposes. This ensures all transactions are accurately recorded and can help prevent fraudulent activity as all records will remain accurate over time.
Notably, however, the decentralized nature of cryptocurrencies may make them more unstable due to market demand for them.
4. Secure
Cryptocurrencies don't need central intermediaries to regulate or secure them, yet that doesn't make them free of security concerns. Hackers could gain access to your private wallet key, and in case it gets misplaced, it could result in you potentially losing all your cryptocurrency investments.
Investing in cryptocurrency requires careful thought and consideration, just like investing in any asset class. Due to its high degree of volatility, diversifying your portfolio and only risk investing funds you can afford to lose is recommended.
When purchasing cryptocurrency, always use reliable exchange platforms and storage options that will protect your assets from theft and fraud. Furthermore, multi-factor authentication should be utilized in order to further guard your wallet against phishing attacks and other threats.
5. Easier Transactions
Crypto transactions take place via a public blockchain ledger, making it far simpler for anyone to trace where, when, and how much was sent from any given wallet address, making fraud prevention much simpler.
Crypto transactions tend to be completed almost instantly or within seconds on most networks compared to traditional wire transfers that take days to "settle".
Investing in cryptocurrency can provide businesses with new avenues for growth and expansion by reaching demographics they wouldn't have reached otherwise. But, it is important to remember that investing in crypto can be risky; thus, it should only comprise a portion of your overall portfolio. Diversifying with stocks and bonds would be wiser as long-term strategies.
6. Lower Fees
Cryptocurrency investors can sidestep the high fees and long processing times associated with traditional banking systems while making international transfers simpler due to being exchanged without needing identity verification or background checks.
Though many virtual currencies lack backing from hard assets or cash flow, others offer diversification by being tied to tangible assets or cash flow - offering an effective way to increase returns overall and diversify investments.
However, while cryptocurrency trading can be very profitable, it should not be undertaken without considering all aspects of your financial health and lifestyle. When making any investment decision, it's best to start small. Once invested, diversify your portfolio as much as possible before investing an amount you are comfortable losing and learning as much about each crypto as you possibly can before engaging with any trades or consulting a financial advisor for advice about which ones would suit you.
7. Easier to Store
As cryptocurrency cannot be stored in a traditional investment account, any exchange or wallet must provide extra security features. Hacks and security breaches are increasingly frequent threats which could lead to theft of both your assets and information.
Diversifying your cryptocurrency portfolio is just as vital as with stocks and shares - this will reduce the risk of you losing all your investments due to market instability or another event.
Many exchanges offer you the ability to set recurring buys that automatically purchase small amounts of the currency you choose every month - known as pound-cost averaging. This can help you invest regularly while taking advantage of price fluctuations over time for maximum long-term returns and to help you reach your crypto investing goals faster.
8. Low-Risk
Before embarking on crypto, it's essential to evaluate your personal risk appetite and investment goals carefully. A general guideline suggests that high-risk investments shouldn't exceed 10% of your portfolio.
Cryptocurrency prices are notoriously volatile, often going from dizzying highs to terrifying lows in mere hours. Therefore, diversifying your portfolio by investing in different coins is key for maximum long-term gains.
Diversifying will reduce your risk of losing all your hard-earned money if a single coin doesn't perform as you expected and maximize gains if any particular coins experience significant growth. It is best to spread investments across projects with promising business models and potential disruption in order to reap maximum benefit from crypto market investments.
9. Low-Cost
Cryptocurrency allows individuals and entities to transfer funds directly between one another on the internet without going through third parties such as Western Union. This can be an excellent solution for sending money overseas or for those without bank accounts.
Cryptos that can limit their supply can help protect investors against inflation. For example, Bitcoin has set limits on how many coins it will ever mint; other cryptocurrencies also restrict how many transactions per year they'll permit.
Cryptocurrencies like cryptocurrency offer potentially high returns; however, their inherent volatility must not become an overwhelming risk in your portfolio. Working with a financial advisor to find an optimal mix is recommended - SmartAsset's free tool connects you with qualified advisers in your locality, so get going now!
10. Global
Cryptocurrency investments have quickly become popular, yet investors must understand both its risks and benefits before making any decisions. Protecting yourself against scams or potential pitfalls is also vitally important.
Cryptocurrency allows for global money transfers without currency conversion fees and immutability restrictions; once transactions have taken place, they cannot be altered in any way.
One benefit of cryptocurrency investment is diversification. Many experts advise having an asset mix including stocks, bonds, real estate and cryptocurrency investments in your portfolio to reduce risk. Cryptocurrency prices tend to move independently from other asset classes and can act as a hedge against inflation; however, due to high inflation levels this year, this theory has been put to the test.
