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Investing in Cryptocurrencies: Advantages and Disadvantages

In the United States alone, approximately 145 million people (56% of the adult population) own or have ever owned crypto. Approximately 107 million of these people have purchased it for the first time in the last two years. Plus, an additional 46.5 million Americans are interested in investing in cryptocurrencies within the next year. Before entering the crypto market, potential investors should understand the benefits and drawbacks of participating in this increasingly popular and relatively new field.

Bitcoin Investment

Advantages Of Investing In Cryptocurrencies

One of the most notable advantages of investing in cryptocurrencies is diversification. This means that the value of most crypto assets is independent from that of assets like stocks, bonds, or fiat. The exception is stablecoins, a kind of cryptocurrency designed to be 1:1 in relation to the value of traditional currencies.

diversification when investing in cryptocurrencies

This is why several African and Latin American countries are turning to cryptocurrency to combat factors such as inflation and currency depreciation. In fact, inflation is less of a concern when investing and trading in cryptocurrency because there is a limit on the maximum number of coins that users can mint, either overall like Bitcoin or annually like Ethereum.

One significant advantage of cryptocurrency investment is the blockchain itself, the infrastructure that supports all crypto assets. The blockchain is a decentralized data-storage ledger that permanently records every transaction that takes place on it. Furthermore, because the blockchain is distributed across multiple computers, no hacker can access the entire chain or any stored data.

Another factor that has increased the use of cryptocurrency in countries such as Nigeria, Thailand and Argentina, is its relative ease of use. Some of these regions lack traditional banking services, which, combined with geopolitical unrest, reduces trust in institutions to hold assets. These factors, taken in conjunction with a young population and increased internet access in recent years, have sparked interest in more alternative, decentralized, and private ways to trade and invest without relying on banks or institutional barriers.

the secureness of blockchain

Finally, one of the most powerful advantages of investing in cryptocurrency is its potential for profit. Prices are primarily determined by the supply of coins from miners and the demand for them from buyers. As a result, as cryptocurrency adoption grows, so do its returns. Furthermore, various wallet services provide yield earnings and additional rewards to holders of certain assets.

Disadvantages Of Investing In Cryptocurrencies

Interestingly enough, many of the benefits of investing in cryptocurrency can also be considered its drawbacks. 

High rewards come with high risks. Cryptocurrencies operate in a relatively small, mostly speculative market in which the value of assets can rise and fall on a daily, even hourly basis. This can be intimidating and scary to new and potential users looking to make stable returns. Fintech experts have detected patterns of ebb and flow in the crypto market. However, this is a relatively new market: Satoshi Nakamoto only published the Bitcoin white paper in 2008. In comparison to centuries-old stock markets, we do not yet know how crypto investing will fare in the long run. As a relatively new technology, cryptocurrencies are still experiencing capacity constraints, making large-scale adoption much more difficult at the moment.

the volatility of the crypto market when investing in cryptocurrencies

People must have a certain level of digital and financial knowledge to invest in crypto and understand the nuances of the Web3 world: concepts such as hot and cold wallets, storing private seeds in safe places offline, and staying alert for cybersecurity attacks. Learning requires time and access to resources, such as those provided by Web3 Law Center. However, people will still need access to the technology required.

While global Internet access is increasing, the bridge is not closing fast enough in some parts of the world. Earlier this year, the Central African Republic (CAR) joined El Salvador in adopting Bitcoin as the national legal tender. However, only 11% of the population in CAR has internet access. Similar accessibility issues exist in El Salvador, along with a lack of trust within the population as a result of market volatility.

Finally, while the cryptocurrency industry’s mostly decentralized and independent nature may seem appealing to users seeking direct control over their assets, the industry lacks sufficient legal regulations to protect holders from scams, hacking, and other cybersecurity attacks. However, as evidenced by the reaction to the US Treasury sanctions against coin mixer Tornado Cash, increased regulation may reduce people’s involvement in crypto investments, adding risk to the investment.

cyberattacks, a hacker attacking a crypto wallet

In conclusion, the benefits of investing in cryptocurrencies can quickly turn negative if investors do not undertake proper research and preparation. It is important to be aware of both the risks and the rewards of crypto investments, stay updated with the latest information from trustworthy resources, and be careful with our moves and actions as we become familiarized with such a fresh and fast-growing market.