Investing in Cryptocurrencies- The Pros and Cons
By now, it’s likely that you have heard about cryptocurrencies. The digital assets have made headline news increasingly over the past few years as more and more businesses and individuals begin to use online currencies. There have been a number of controversies surrounding digital currencies, like Bitcoin and Ethereum, including huge exchange crashes, large cyberattacks and an extensive amount of criminal activity associated with the online currency. Despite this, cryptocurrencies like Bitcoin continue to grow in popularity and value. In fact, last month Bitcoin reached new heights, with values of $5,000 per bitcoin.
With such huge value, it might be tempting to invest in some cryptocurrency yourself. However, as with all investments, there are some advantages and disadvantages to weigh up before you commit. We’ve put together a helpful list of all the pros and cons associated with investing in Bitcoin to help you make the decision.
Here are all the reasons you and your business should consider investing in cryptocurrencies.
In the past year alone, the most popular cryptocurrency, Bitcoin, has risen from an approximate value of $2,000 to record highs of over $5,000. The price of Bitcoin has quadrupled in just six months, leading it to become more valuable than an ounce of gold for the first time. To put this into perspective, individuals who had the foresight to invest £2,000 (the equivalent of $2,639) in Bitcoin five years ago would be able to sell their currency for over £1 million ($1.3 million) today. For this reason alone, it could be extremely worthwhile to invest in some cryptocurrency to sell for a huge profit at a later date. Remember, cryptocurrencies like Bitcoin can be divided by up to 8 decimal points, meaning that you can invest a small amount into the currency if you are an individual looking to make a first-time investment.
Cryptocurrencies are being more widely used
Around the world, cryptocurrencies are growing in popularity. Many banks and financial organisations are experimenting with cryptocurrency use in order to speed up transactions and reduce the costs of sending money internationally. At first, the cryptocurrency was generally associated with online gaming. A number of popular gaming platforms, including Steam and Microsoft, have recently made payment by cryptocurrency possible.
Since then, cryptocurrency has exploded around the world. There are now a number of everyday uses for digital currencies, including retail outlets, online shopping, travel agents and even restaurants in some parts of the world. In Japan, one of the country’s largest providers of “pay at table” services now provides customer with the option to pay for their meal using Bitcoin. Over 260,000 retail stores in the country also accept Bitcoin. This just goes to show the huge potential for cryptocurrencies to be used in all aspects of our everyday lives.
What was once an extremely complex concept has become more widely understood thanks to widespread discussion surrounding cryptocurrencies and their use. Investing in cryptocurrencies online has become as straightforward as online shopping. All you need to do is log into a reliable cryptocurrency exchange, set up and verify an account and then purchase your desired amount of currency. The lack of regulations associated with purchasing online currencies, like Bitcoin, mean that there are little limits or restrictions when individuals want to make an investment. This makes the process considerably easier in comparison to investing in other assets, such as financial securities, stocks and shares or bonds.
Here are the potential risks associated with cryptocurrency investments.
Despite the value of dominant cryptocurrencies like Bitcoin increasing in value, they are also renowned for being extremely volatile. This means that one month the value of Bitcoin could be soaring, only for it to crash completely next month. For this reason, short term investments and transactions are not usually worthwhile when it comes to investing in cryptocurrencies. Many industry experts believe that digital currencies like Bitcoin will decline in value rapidly in the near future. They perceive the inflation of their value to be something like a bubble.
Mass adoption will take time
Although Japan is definitely leading the way when it comes to using cryptocurrencies on a wide scale, other countries are not so fast to uptake the technology. This is simply because they do not have the means to invest in cryptocurrencies at the moment. The introduction of the Internet of Things (IoT) is the first step towards the mass use of cryptocurrencies in the Western world. However, there have been huge setbacks in the development of this technology too; with security issues and processing power being key issues. So, those who are looking to invest in Bitcoin for their own personal use are not likely to be able to spend it in many locations at the moment which renders the currency almost useless unless you are only investing for buying and selling purposes.
In addition to delays on the integration of cryptocurrencies, there are also serious flaws in their regulation. This is a key factor which is limiting the potential of currencies, like Bitcoin and Ethereum, to be used within businesses. Until cryptocurrencies are defined as either a commodity or a currency, there is going to be little progress towards their widespread use. Without clear regulations and guidance, businesses put themselves at risk by using cryptocurrencies. In order for the technology to progress, regulations need to be introduced. However, this poses a difficult challenge as the core nature of cryptocurrencies is that they are decentralised – meaning they are not controlled by any government or authority. To introduce regulations goes against the core principle of cryptocurrencies, which many enthusiasts reject. A balance will have to be found if cryptocurrencies are to become a widely used part of societies around the world.
Hopefully this overview has given you a further understanding into the pros and cons of investing into Bitcoin, helping you to decide whether or not you should consider investing for yourself.