Are Cryptocurrencies Still a Good Investment in 2022 ?


It is possible to become filthy rich in 2022 by investing in cryptocurrencies. 

But you can also lose all your money. How can both be true? Investing in cryptocurrencies is risky, but also very profitable.

Cryptocurrencies are a good investment if you want to profit directly from the demand for digital currencies. A safer but less lucrative alternative is to buy shares in companies that are invested in cryptocurrencies.

Let us examine the pros and cons of investing in cryptocurrencies.

Is cryptocurrency safe?

There are several factors that make cryptocurrencies not completely safe, at least for now, while other signs suggest that cryptocurrency will last in the long run.

There are many risks associated with cryptocurrencies. Investors and users must decide for themselves whether the benefits outweigh these risks.

Risks of cryptocurrencies

Cryptocurrency exchanges, more so than stock exchanges, are vulnerable to hacking and become the target of other criminal activities. These security breaches have resulted in large losses for investors whose cryptocurrency has been stolen.

Keeping cryptocurrencies safe is also more difficult than owning stocks or bonds. Cryptocurrency exchanges such as Coinbase (Nasdaq: currency) make buying and selling cryptocurrencies such as Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH)relatively easy. However, many people do not want to hold their digital assets on exchanges because of the aforementioned risk of cyberattacks and theft.

Some cryptocurrency owners prefer offline "cold storage" options such as hardware or paper wallets, but cold storage comes with a number of challenges. The biggest is the risk of losing your private key, without which it is impossible to access your cryptocurrency.

There is also no guarantee that any cryptocurrency project you invest in will be successful. Competition among thousands of blockchain projects is fierce. Moreover, projects that are nothing but scams are common in the crypto industry. Only a few cryptocurrency projects will eventually succeed.

Regulators could also crackdown on the crypto industry as a whole, especially if governments begin to aggressively view cryptocurrencies as a threat and not just an innovative technology.

And since cryptocurrencies use the latest technology, this also increases the risks for investors. Much of the technology is still in development and has not been extensively tested in real-world scenarios.

Introduction of cryptocurrencies

Despite the inherent risks, cryptocurrencies and the blockchain industry are going from strength to strength. Much-needed financial infrastructure is being built, and investors increasingly have access to institutional custodial services. Professional and retail investors are gradually gaining the tools they need to manage and protect crypto assets.

Futures markets for cryptocurrencies are being created, and many companies are getting directly involved in the cryptocurrency sector. Financial giants like Maidan (its symbol on the New York Stock Exchange: SQ)and Paypal (NASDAQ: PYPL)It facilitates the buying and selling of cryptocurrencies on their popular platforms, while other companies, including Square , collectively have hundreds of millions of dollars in bitcoin and other digital assets. Tesla (NASDAQ: TSLA)Bought $1.5 billion worth of Bitcoin in early 2021.

While other factors still influence the risks of cryptocurrencies, the growing prevalence is a sign of the industry's maturity. Both retail and corporate investors are seeking direct exposure to cryptocurrencies as they consider them safe enough to invest large amounts of money.

Are cryptocurrencies a good long-term investment?

Several cryptocurrencies like Bitcoin and Ethereum are launched with lofty goals that can be achieved over a long time horizon. The success of a cryptocurrency project is not guaranteed, but if the crypto project achieves its goals, early investors can be rewarded handsomely in the long run.

However, it is essential for any cryptocurrency project to achieve widespread adoption in order to be considered a long-term success.

Bitcoin As a long-term investment

as the most popular cryptocurrency, benefit from the network effect - more people want to own Bitcoin because Bitcoin is owned by most people. Bitcoin is currently considered "digital gold" by many investors, but it can also be used as a digital form of money.

Investors believe in Bitcoin that the cryptocurrency will increase in value over the long term because the supply is fixed, unlike fiat currencies like the U.S. dollar or the Japanese yen. Breadth is elected Bitcoin With less than 21 million coins, while currencies controlled by the central bank can be printed at the will of politicians. Many investors expect Bitcoin to increase in value as the value of fiat currencies declines.

We believe that in the long run, Bitcoin has the potential to become the first truly global currency.

Ethereum As a Long-Term Investment

Ether is the native currency of the Ethereum platform and can be purchased by investors looking to make a commitment to an Ethereum wallet. While it can be considered Bitcoin's digital gold, with Ethereum you are building 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, as well as the open-source nature of dapps, create opportunities for Ethereum to leverage the network effect and create sustainable, long-term value. The platform allows Ethereum to use "smart contracts" that are automatically executed based on terms written directly into the contract code.

Network pools Ethereum Ether from users in exchange for executing smart contracts. Smart contract technology has great potential to transform major industries like real estate and banking, and create entirely new markets.

With the increasing use of the Ethereum platform around the world, the iconic Ether is rising in utility and value. Investors can be optimistic about the long-term potential of the Ethereum platform. You can profit directly by owning Ether.

Should you invest in cryptocurrencies?

Owning some cryptocurrencies can further diversify your portfolio, as cryptocurrencies like Bitcoin historically have almost no price relationship with the U.S. stock market. If you believe cryptocurrencies will become more prevalent over time, it may make sense for you to buy some cryptocurrencies directly as part of a diversified portfolio. Make sure that for each cryptocurrency you invest in, you have an investment thesis as to why that coin has performed.

If buying cryptocurrencies seems too risky, you can consider other ways to profit from the crypto rally. You can buy stock in companies like Coinbase and Square and PayPal, or invest in an exchange like the CME (NASDAQ: CME) group, which facilitates trading in cryptocurrency futures. Investing in these companies can be profitable, but they do not have the same positive potential as investing directly in cryptocurrencies.

Expert Q&A

Sought Motley Fool Comprehensive insights on blockchain from three financial experts, Dr. Christine Parlor, Professor and Chair of Finance and Accounting Sylvain C. Coleman at the Haas School of Business, College of California, Berkeley, and Dr. Jamie Lenz, Director of the Master of Engineering in FinTech and Master of Engineering in Cyber Security at Duke College, and Dr. Merav Ozer, a leading expert on blockchain, Professor of Financial Technology at Rutgers School of Business.

Doctor. Kristen Parlor, professor, and Sylvain C. Coleman, head of the Department of Finance and Accounting at the Haas School of Business, College of California, Berkeley. Most of her work is in the institutionally complex areas of finance, banking, and fintech. Her current work focuses on Fintech , Payment Systems and BLOCKCHAIN Cryptocurrencies, Market Structure.

The Motley Fool: What advice would you give to someone looking to invest in blockchain technology?

Lobby: Be curious, but also be cautious. It's important to be aware that there is no complete regulatory framework in this area. So it's important to do your homework. First, consider the route through which you will reach the market. There are regulated exchanges and trading venues, but there are also unregulated trading venues. Second, while most tokens are based on open source code, they do not have the same disclosure systems as preferred stock. So be careful and check the nature of the underlying code. Note that there are fund ETFs and ETPs in other countries (Canada and Europe) that replicate cryptocurrency wallets, but have not yet received approval in the US. If offered to consumers, this would be a low-cost way to get into the crypto market, and then someone else would take over the market mechanics.

Linz: Learn and keep learning. Developments in the space are happening at such a rapid pace that new knowledge is constantly being generated. As an instructor teaching blockchain, that's the hardest part, reinventing the course every semester but keeping my students and myself as up to date as possible. That does not mean I neglect basic knowledge. It's important to have it, as well as some knowledge of history to understand why developments happened at certain times.

Dr. Merav Ozer is a leading expert on blockchain technology and a professor of financial technology at Rutgers School of Business. She works as a research director in the RBS Blockchain Hub and as a consultant and researcher in the Rutgers Blockchain And FinTech Collaboratory.

Ozair: Technology Blockchain It is definitely the future. It is inevitable. However, it's hard to predict which projects will catch on, which will fail, and which will fade into oblivion.

Most technology companies using blockchain are in early stages, if not very early stages. Investing in companies using blockchain technologies therefore carries the same risks as investing in a startup. And as with any startup, the risk-reward ratio is high.

So learn about blockchain technology Perform comprehensive due diligence on any project - from technology to business model to implementation. Learn about the "problem" you are trying to solve and the solution you are offering - from a technology and business perspective.

Blockchain technology holds so much potential, but the implementation is in the details.

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