Investors are always looking for ways to grow their portfolio. Sometimes, growing your portfolio means betting on a sure thing. Other times, it means the complete opposite. That’s definitely the case with cryptocurrency.
As with any type of investment, cryptocurrency can offer a lot to its investors, but that doesn’t mean it’s the right investment for you. It’s important to understand the pros and cons of whatever you’re investing in. Cryptocurrency is no different.
What Is Cryptocurrency?
The very first step is understanding exactly what cryptocurrency is. ICOs, or Initial Coin Offerings, are based on the more well-known IPOs, or Initial Public Offerings. Except, instead of buying a share in a company, you’re essentially crowdfunding on top of a block chain.
The investment isn’t about the cash. Instead, you buy units of digital currency, which are called tokens. The idea is that the endeavor will be successful, which in turn will generate demand for the tokens. Bitcoin is the most popular and well-known example of cryptocurrency.
Why You Might Want to Invest in Cryptocurrency
The link between cold hard cash and cryptocurrency is a bit fuzzy, but the potential to make real money is there—and there’s the potential to make lots of it. A thousand-dollar investment in Bitcoin in 2013 translates to over $400,000 today. The biggest pro to investing in cryptocurrency is definitely the potential to make a huge amount of money.
Although it might be the most convincing reason, it isn’t the only one. A few other pros include:
- In general, you can cash out investments more quickly with cryptocurrency as compared to other investments.
- With a solid network, investors in cryptocurrency can sell almost instantaneously, while investors of IPOs can’t control when their investment is cashed out.
- Because the timeline for investing in cryptocurrency is so short, you know exactly what you’re investing in. A startup that wants to go public may look very different than it did when it was asking for initial capital.
Why Some Investors Skip Cryptocurrency
There are tons of things to consider when investing, and that includes the cons of a particular investment. There are plenty of cons associated with cryptocurrency:
- Although it could also technically be considered a pro, ICOs require a lot less paperwork and there’s a lot less regulation. That can leave investors open to scams.
- The worth of a particular currency depends on its network of users. If there is no demand, the network fails, and you lose your investment.
- Cryptocurrencies are fairly new, so no one can say if they’re the wave of the future, or if everyone’s investment will come crashing down.
In addition, you’ll have to do all the research on particular currencies yourself. A traditional broker isn’t likely to help you in the area of cryptocurrency.
Every investment carries risks, but many people are finding that the risk of investing in cryptocurrencies is worth taking. Consider the pros and cons very carefully, do your research, and you can increase your chances of making a sound investment.