There are many cryptocurrencies, and they are becoming increasingly popular. While they don’t have the backing of governments, they also aren’t regulated by central banks. Little wonder people ask, is cryptocurrency a good or bad investment.
The global cryptocurrency market is valued at nearly $300 billion, but it’s difficult to say which currencies will survive or whether the prices will rise or fall in the future.
Cryptocurrencies can be bought and traded online, but many governments have taken steps to regulate the currency or prohibited its use in financial transactions altogether.
To help you decide whether this is a good investment for you, here’s what you need to know about cryptocurrencies.
Table of Contents Hide
- What is cryptocurrency?
- How many cryptocurrencies are available? What is their total worth?
- Popular cryptocurrencies in 2022
- Why are cryptocurrencies so popular?
- Are cryptocurrencies a good investment?
- Is crypto a decent long-term investment?
- How do I buy cryptocurrency?
- Are cryptocurrencies legal?
- How do I protect myself?
- Timing Is Key
- Frequently asked questions about cryptocurrency investment
What is cryptocurrency?
Cryptocurrencies are a form of online payment that can be exchanged for goods or services. Many companies issue these cryptocurrencies, called tokens, and these can be used to access the specific good or service the company provides.
Think of them as arcade tokens that you exchange for a game or a slot machine token that you give to get into a casino.
You will need to exchange real currency for this form of payment to access the good or service.
How many cryptocurrencies are available? What is their total worth?
By December 2021, more than 15,000 different cryptocurrencies will be traded publicly, according to CoinMarketCap.com, a market research website.
Cryptocurrencies continue to proliferate. The total value of all cryptocurrencies on Dec. 10 2021 was about $2.3 trillion: earlier in the year, the total value of all bitcoins—the most popular digital currency was pegged at about $932 billion.
Popular cryptocurrencies in 2022
Bitcoin is a digital currency that is gaining in popularity because its supply is fixed.
Unlike fiat currencies (currencies such as the U.S. dollar or the Japanese yen that are backed by a central bank), Bitcoin isn’t subject to printing whims by politicians and can’t easily be devalued by inflation.
Many investors believe that Bitcoin will increase in value over the long term as fiat currencies become increasingly less valuable.
Ethereum is the native coin of the Ethereum platform and can be purchased by investors wishing to gain portfolio exposure to Ethereum.
While Bitcoin can be viewed as digital gold, Ethereum is building a global computing the platform that supports many other cryptocurrencies and a massive ecosystem of decentralized applications—”dapps”—built on the Ethereum platform.
The large number of cryptocurrencies built on the Ethereum platform, combined with the open-source nature of dapps, creates opportunities for Ethereum to also benefit from the network effect and to create long-term value for early investors.
The Ethereum platform enables the use of “smart contracts,” which execute automatically based on terms written directly into their code. The Ethereum network collects Ether from users in exchange for executing smart contracts.
Solana, a high-speed network that was introduced to the market in early 2018, has quickly grown in popularity and value. The cryptocurrency that was trading at around $0.01 in January is now worth around $2.50, according to CoinMarketCap.
The DeFi field is expected to grow in prominence in the years ahead. Solana, a developer-friendly network with lower transaction fees than Ethereum is a great cryptocurrency for investors and traders to consider buying at current price points.
Binance Coin (BNB)
Binance Coin is the native token of blockchain Binance Smart Chain, which is the world’s largest cryptocurrency exchange in terms of total trading volume.
The binance Coin accounted for 0.7% of the cryptocurrency market as of early December 2018, and its market share rose to 4.1% by late December.
As with many of the cryptocurrencies with the highest market caps, BNB provides a return on investment through mining rewards, staking rewards, and an appreciating value.
The supply will be capped at 100 million BNB, with quarterly burns that reduce the supply in line with bullish demand.
MATIC, a cryptocurrency platform that was partially funded by Binance and Coinbase were built on Ethereum.
The goal of the platform is to create a multi-chain system for Ethereum, which will allow for more mainstream use of cryptocurrencies. MATIC is now among the top 15 cryptocurrencies by market cap, has increased from less than 2 cents in January to about $2 in early December.
It has rebounded from an early December sell-off, surging 21% between Nov. 28 and Dec. 5. MATIC is also one of the best tokens to invest in December and beyond due to its resilience during challenging times.
Avalanche Token (AVAX)
Avalanche, a blockchain company backed by venture capital firm Andreessen Horowitz was founded by Cornell University computer science researchers.
The AVAX coin began the year trading for just $3.17, but it has rapidly gained market share as cryptocurrency users increasingly flock to Avalanche’s smart-contract blockchain network.
Currently, trading for more than $80, AVAX is one of the best-performing coins out there. What Avalanche lacks in short-term resiliency – AVAX badly underperformed during the recent market downturn – it makes up for increasing popularity.
Increasingly compatible with other prominent Ethereum projects like SushiSwap, Avalanche is also gaining relevance through “bridges,” which allow users to move cryptocurrencies from one blockchain to another.
Why are cryptocurrencies so popular?
Supporters of cryptocurrencies such as bitcoin view them as a way to bypass central banks’ handling of the money supply, which tends to devalue currency over time.
They also like that blockchain technology is decentralized and can be more secure than traditional payment systems. And they see the currencies’ value going up in the short term.
Are cryptocurrencies a good investment?
Cryptocurrencies such as bitcoin are not viewed by many investors as real investments, despite their potential as speculative vehicles.
The reason is that cryptocurrency profits can only be realized if someone else will pay a higher price for these digital currencies than you did. That’s known as the greater fool theory of investment.
A more favorable scenario would be to invest in businesses that increase in value over time by growing the profitability and cash flow of the operation—an approach that Warren Buffett has counseled investors to follow.
If cryptocurrencies are going to be viable for commerce, they must have stable values, allowing merchants and consumers to determine what a fair price is for goods.
Bitcoin and other cryptocurrencies have been anything but stable through much of their history—which creates a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less viable as a currency.
Why spend a bitcoin when it could be worth three times the value next year?
Is crypto a decent long-term investment?
Cryptocurrency is a place to park money. It cannot be considered an investment because it does not generate cash flows, nor can it change in value on its own.
When you buy gold or fiat currency for the same reason, their fluctuating prices just give that illusion that they’re good or bad investments. They themselves do not produce anything.
Although many people believe that cryptocurrencies such as bitcoin will become stable and might have the characteristics of a good currency, what is overlooked is that central banks will not be able to control the supply of these currencies in the market.
Since central banks will not be able to control inflation and deflation with any alternative currency whose supply is not under their control, they are likely to ban cryptocurrencies in the future.
How do I buy cryptocurrency?
Some cryptocurrencies can be bought directly with U.S. dollars, but others can only be bought by buying Bitcoin or another cryptocurrency and then trading those for the one you want.
Are cryptocurrencies legal?
Cryptocurrencies are legal in the United States, though China has essentially banned their use. Ultimately, though, their legality depends on each country.
Also, be sure to consider how to protect yourself from fraudsters who see cryptocurrencies as an opportunity to bilk investors. As always, buyer beware.
How do I protect myself?
If you’re looking to buy a cryptocurrency in an ICO (initial coin offering), read
the fine print in the company’s prospectus for this information. If you’re looking to invest in a cryptocurrency, look for companies with information available about their businesses and founders.
Also, if a company has its prospectus available, that’s even better—each company will have different information, but any amount is more than zero.
Timing Is Key
After researching and developing a feel for the cryptocurrency industry, you may have determined one or more projects in which to invest.
You’ll likely see greater returns if you invest after thoroughly understanding the industry, rather than immediately jumping in when a new currency is hot.
The cryptocurrency space follows particular trends (for example, Bitcoin often leads the way) so it’s important to watch out for what’s going on in the industry.
When investing in digital currencies, remember that you are taking a risk. Many investors have invested money into the virtual currency world only to watch it disappear. By doing your homework before investing, you increase the likelihood that your money will be well spent.
The cryptocurrency market is highly speculative, and this article is not a recommendation by the writer to invest in cryptocurrencies or initial coin
Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions.
Frequently asked questions about cryptocurrency investment
Does cryptocurrency give you real money?
Cryptocurrencies may go up in value, but many investors see them as mere speculations, not real investments. The reason? Just like real currencies, cryptocurrencies generate no cash flow, so for you to profit, someone has to pay more for the currency than you did.
Cryptocurrency is likely the single most volatile asset in which you can invest. If you want a stable asset, an S&P 500 index fund is usually a safe bet. If you want a speculative asset, an individual stock is a good choice. Also, if you want an extremely volatile asset, crypto can serve that role well.
If you buy Bitcoins from an exchange like Binance or others, your money goes to the exchange. However, if you buy it from a holder of bitcoin by transfer of his bitcoin from his wallet to your wallet, your money goes to him as decided between both of you.
Yes, you can make money with cryptocurrency. … Although the daily average volume of cryptocurrency trades is just 1% of the foreign exchange market, there is a lot of volatility in the crypto market. So there is the potential to do short-term trades.
In essence, the supply of cryptocurrency tokens is not set by a central authority or government. … The main difference with cryptocurrencies is that transactions can be conducted over exchanges or through direct transactions using your cryptocurrency wallet.
Cryptocurrencies are notorious for being volatile. And where there is volatility there is a huge opportunity to make and lose money. If you’re investing based on what a celebrity is tweeting or what a self-declared expert tells you to do, then there’s a good chance that it will cost you.
Cryptocurrency is a type of digital currency that generally only exists electronically. There is no physical coin or bill unless you use a service that allows you to cash in cryptocurrency for a physical token.
All things being considered, you should have enough information before investing in crypto.
Crypto has liberated people and as well bankrupt people; the differences between those two types of humans are in the information they have and what they do with the information.
We hope you found the answer to this question, Is cryptocurrency investment the right option for your money in 2022?
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