Why You Should (and Shouldn't) Invest in Crypto

Cryptocurrencies are trending now more than ever and it seems that everyone wants to get in on the boom. But does that mean that you should invest in crypto? The short answer is yes, and no. To fully understand the answer, though, let’s take a look at what crypto is and how it works.

What is cryptocurrency and why should you care?

If you have been hearing a lot about cryptocurrency and aren’t quite sure what it is, here’s a quick overview. Cryptocurrency is a type of digital currency that uses encryption technology to generate new units and verify transactions made with existing units. Units of currency can be transferred through a computer or smartphone without an intermediate financial institution, like a bank or credit card company, making it essentially peer-to-peer electronic cash. One of its most important features is that it’s decentralized—there is no single point of failure, so if one person or government shuts down a cryptocurrency system, it doesn’t take down any others using its network. This makes cryptocurrency appealing to libertarians who are concerned about big government and centralized institutions.

What does investing in cryptocurrency entail?

If you're looking to jump into cryptocurrency investing, there are some key things you need to know. First, despite what its name suggests, cryptocurrency isn't actually a type of currency or money—at least not like U.S. dollars or euros are. Cryptocurrency is actually a decentralized digital asset that can be used as a medium of exchange to purchase goods and services on a wide variety of different online stores and websites. It's much easier for businesses and merchants to accept cryptocurrency as a form of payment because it eliminates credit card fraud and other fees that come with most online transactions from traditional banks. Unlike traditional currencies like the U.S. dollar, cryptocurrency doesn't have any physical notes or coins. Instead, cryptocurrencies exist only digitally through computer code that can be stored in a virtual wallet. This means that if your wallet is hacked or stolen, your funds will be gone forever unless you have backup copies saved somewhere else. There are hundreds of cryptocurrencies available today and each one offers unique benefits and drawbacks to consider before deciding whether they're right for your portfolio.

Are cryptocurrencies really safe for investors?

While there are some major benefits to investing in cryptocurrency, it's also important to be aware of some risks. For example, if you keep your cryptocurrencies on an exchange or online wallet, you risk losing all your money if that site is hacked. In 2017, many investors who used an online trading platform based in Hong Kong called NiceHash lost 4,700 bitcoins—currently worth about $64 million. While sites like Coinbase and Gemini offer users FDIC insurance for bank account balances up to $250K USD depending on their individual state of residence (Coinbase offers FDIC insurance on balances up to $250K), exchanges are not as likely to have that kind of policy on hand. If a hacker were to break into an exchange, they could potentially steal millions of dollars' worth of currency. On top of that, even if you're keeping your investment strategy safe by storing coins yourself, it's still possible to lose them due to hardware failure or human error. If you're thinking about getting into crypto investing but aren't sure how safe it really is, don't worry: It’s complicated! But with a little education and planning ahead, you can minimize your chances of having any financial heartbreak.

How are cryptocurrencies taxed?

This answer depends on a number of different factors, and is subject to change with legislation. If you’re investing through an IRA or 401k, then your cryptocurrency gains will be treated like any other investment. But if you purchased through Coinbase and had to pay taxes at that time, you can use Form 8949 to figure out how much of your return was short-term (held less than a year), long-term, or it didn’t even make it into an account! Check out IRS form 8949 for more information. The good news about cryptocurrencies is that they are generally low-cost investments. There are no annual management fees or 12b-1 fees, so there's not as much money being siphoned off by financial institutions before your returns get to you. The bad news? Because they're still relatively new, there aren't many ways to invest in them yet. There are some ETFs and mutual funds available, but most people don't have access to those options yet—or they're highly regulated and come with high minimums.

How can I get started with investing in cryptocurrency?

First things first, do not invest money you can’t afford to lose. While it is unlikely that you will lose all of your money, it is possible. And even if everything goes well, it can take a while to see any sort of profit. This means that crypto investing isn’t for everyone. But if you’re looking for long-term potential and an interesting way to make some cash—this could be a fun option for you! If you still want to get started but aren’t sure how, here are some tips 1. Find out what type of investment makes sense for you: In general, there are two main types of crypto investments: speculation and long-term holding. Both have their pros and cons so try both out to see which works best for you. Speculation involves buying cryptocurrencies as an investment with no intention on actually using them in real life—you simply hope they go up in value over time so that you can sell them at a higher price later on down the line. Long-term holding is when you buy cryptocurrency with the intent of owning it for months or years. 2. Research before investing: Before putting your money into anything, learn about it! Learn about different coins and how they work; research whether or not people are actually using them; figure out where each coin fits into today's market; etc. A good place to start is our guide on What Is Cryptocurrency? 3. Don't put all your eggs in one basket: Diversify by spreading your investment across multiple coins/tokens/etc. Not only does diversification reduce risk, but it also helps spread awareness about specific projects—which might encourage more people to use them too! 4. Buy low, sell high: When buying crypto, always wait until its price drops before purchasing it. When selling crypto, always wait until its price rises before selling it. This may seem like common sense but many people end up losing money because they don’t follow these rules! 5. Remember why you're doing this: Are you trying to make a quick buck? Do you think blockchain technology is going to change the world? Are you trying to support an open source project that interests you? Etc.

Final words - the biggest risk isn’t investing, but not investing

Taking risks is something we have to do on a daily basis, whether it’s making a new friend or taking a step outside our comfort zone. But for some reason, investing scares people. Maybe it’s because most of us were taught that taking financial risks are bad. But if you believe in yourself and know your risk tolerance, there’s no reason why you shouldn’t invest—or at least try to learn more about crypto and other investment vehicles. After all, life is all about living it, right?