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Cryptocurrency has taken the speculative investing world by storm over the past 10 or so years. A relatively new and exciting investment which has brought in thousands of new investors seeing the quick gains that are possible. However, we have also seen the downsides. Just look at the Bitcoin crash of December 2017 and it is yet to reach those 2.5 years later.

With Bitcoin and the exciting prospect of many new cryptocurrencies entering the market, people invest in cryptos from all over the world, in search of quick financial gain. But is it really the best way to make a lot of money online?

What Is a Cryptocurrency?

Cryptocurrency is basically a virtual currency. However, you cannot use cryptocurrencies to purchase goods. It is more so used as a trading medium. People invest in cryptos hoping its value will increase in future due to an increase in demand. And in the past, investors have made incredible gains, for example with bitcoin before 2017. However, there is a lot of risk that investors must be aware of.

Here’s the pros and cons…

Well the obvious positive to trading cryptos is the huge amount of gains that are possible. If you see the graph below, you’ll see that from December 2014 to December 2017, the price of bitcoin increased by 7,200%. If you’d invested just £1000 at that time, by its peak you’d have made £71,000 from a 3 year investment. 

As the price increases rapidly, people see this and jump on the bandwagon, causing the price to soar even higher. The trouble is these investors jumping in purely because of the price increase aren’t educating themselves on what they are investing in. This means if they see the price drop, they will leave the market just as quickly.

This is the reason why you’ll find so much volatility with cryptocurrencies. There really isn’t much information backing them. Unlike investing in a stock, you have the company’s earnings and reports to relate the price to the actual value of the stock. Investors here will have a much better understanding of when to stay in the company. For this reason, you will tend to see a bit more stability in the stock market. So you can think of cryptos as a much higher risk reward opportunity than common stock market investing.

So as always, it really is up to you what you do with your money. If you invest in cryptos, it is important to know that there isn’t anything backing its price. So there is a much larger risk of a sharp drop at any time. So although there’s some extra reward to be had from this type of investing, you must also note that there is a lot more risk and you should be prepared for this. 

My Thoughts On Cryptocurrencies:

Personally, I stay well clear from cryptocurrencies, the price is too volatile and I like to make calculated risks to better my chances of making a decent investment return online. If you are keen to give it ago, I understand, it does seem exciting (like gambling). All I’d say is to only invest a small amount of your net worth and only invest what you can afford to lose. As just like in 2017 all of your cryptocurrency gains could fall in an instant, without warning.

Thanks for reading this post. I hope you found it useful. I hope it inspires you to think more about where you put your money and to make more calculated risks. That being said, there’s no harm in playing around with cryptos for a bit of fun, if you can afford it.

If you have anything to add to this post or have any questions, let me know in the comment section below. If you’d like to learn more about what I believe makes a successful investor, check out the Investing section of this website. 

Wishing you a happy and risk-free investing journey.

Harry