Advantages and disadvantages of investing in cryptocurrency

What are the pros and cons of investment in cryptocurrency?

The growth of capitalization of the major cryptocurrency in the last year, of course, attracts investors who want to multiply their money through investments in bitcoin or the most promising altcoins (the so-called all cryptocurrencies besides bitcoin). Some people prefer bitcoin, as the most capitalized and stable crypto-currency that has increased over last year by 300%, someone thinks more profitable investments in other coins, the most promising and still quite reliable, for example investment in ETH or DASH, demonstrated over the past year, 8 - and 12-fold increase. But some investors is combined by and includes the investment package and BTC, and alternative currencies.

At first glance, very tempting to invest all the money in altain, which rose ten times in the last year alone, and a year later to become ten times richer. However, it is not so simple. The growth rate of altcoins more “shaky”, and often heated, primarily by the efforts of speculators and advertising campaigns, and only secondarily, some real benefits of their technology; in such cases the growth may end and stagnation, and even surrender. In addition, we cannot forget about the low base effect, which will be described later.

So investments in bitcoin are very serious alternative to investing in altcoins. Many experienced investors assume that even the most successful altcoins, the growth rate in the coming year, at least, slow down, and in the worst case possible and stagnation, and falling several times. So investments in bitcoin are viewed as much less risky, though not promising annual profits in 1000%.

But the overall situation is ambiguous, which is signaled, for example, an increase in the absolute and relative capitalization of altcoins.

Let's look more closely what opportunities, prospects and risks associated with investing in cryptocurrency. Let's start with the pros and cons of investing in bitcoin, but these are the pros and cons are largely characteristic of investing in other cryptocurrencies; then pay attention to the characteristics of the premises of your money in altcoins.

What are the pros and cons of investment in bitcoin?

Let's start with the advantages that bitcoin investor has reason to hope:

1. Bitcoin shows stable annual scale, growth rates, and there is reason to believe that this trend will continue. The graph below shows that the exchange rate of bitcoin over the last 12 months has increased about 4 times from 450 to $ 1,700;

1. community confidence in the bitcoin than any other cryptocurrency that to a certain extent ensures that bitcoin not only from ruin but from a long and heavy price reduction. All drawdowns in recent years bitcoin successfully played, and then went up. What bitcoin has the highest out of all cryptocurrencies by market capitalization and the largest number of users, further strengthens its position;

2. a Successful solution to the problem of scaling of bitcoin, if it can be achieved, will also open price way up;

3. Bitcoin has much more liquidity compared to any other cryptocurrency; for the average user this means that he will always have a vast variety of options to buy or sell bitcoins, including the possibility to buy bitcoins in bicolorate. Software and technical devices for transactions with bitcoin are also quite common; for example, manufacturers of best wallet, KeepKey Ledger and offer to store bitcoins good range of hardware wallets.

4. Financial and political instability can lead to the fact that in some countries, or the world in General, Fiat currencies will become too unreliable for storage savings, while bitcoin (along with other stable assets such as gold) will remain solid means of saving money. If this happens, the one who attend to buy a bitcoin today, will definitely be ahead of the game.

5. Bitcoin is still free from excessive pressure and control that increasingly poison the lives of the owners of Fiat currency. States seek to limit cash circulation and depositing money in the Bank means excessive “transparency” of your finances for regulatory authorities, the high Commission for the majority of banking transactions and, in some cases, even negative interest on the Deposit and limits the ability to cash out the latter. At the same time, storing of bitcoin is absolutely free, and it is not limited to government and Bank bureaucratic institutions, in a word, bitcoin is completely decentralized and relatively anonymous, or rather pseudonymous.

6. the Problem of scaling the bitcoin network are not yet solved. Meanwhile, the network bandwidth has long been concern, and the increase in commissions makes it unprofitable to small transactions (e.g., associated with the sale of bitcoin is mined bitcoin-cranes), and transactions with a decent Commission are often “stuck” in the network. None of the solutions to the problem (or “soft update” Segregated Witness, no “hard” Bitcoin Unlimited) is not a perfect solution, and the crucial support of a community of miners and none of them have yet. If updates to the Protocol and will not happen, it will mean the worsening traffic problems on the network and the weakening of the position of bitcoin as a payment instrument. Bitcoin as an investment asset should not directly suffer from poor patency of the network, however, the weakening of interest from those who see in bitcoin, first of all, the payment system could have a negative impact on price. Besides, if investors suddenly want to sell bitcoins, which is not stored on the preferred stock exchange and on a local or web wallet, challenges with the transfer of the coins to the exchange or to the exchange, where the exchange of bitcoin can deliver a lot of trouble.

7. the Problem of excessive state regulation, and in some countries, and clearly prohibitory policy, bitcoin today is quite relevant. Excessive control, in a sense, the reverse of its legalization.

8. the Sharp rise in bitcoin exchange rate in recent years (from $1000 to $1300 for January-April 2017 and from $1300 to $1700 in the last two weeks) raises concerns that the rate may “collapse” and even to return to their former positions; however, bitcoin had and still have serious preconditions for growth, so it is not necessary to consider this growth as a “bubble”. As for the high volatility of bitcoin, it is more difficult to use bitcoin for short-term transactions, such as buying bitcoin in the exchange to be exchanged for goods which can be paid in bitcoins at the rate, not to invest for the long term. In addition, there is reason to believe that volatility will decline in the future, if bitcoin will enter a more stable phase of its development.

What are the features of altcoins as an investment tool?

For a large capitalization and the authority of cryptocurrency partially relevant some of the above-described advantages of bitcoin, for example, the stability resulting from significant capitalization or the ability to withdraw your funds from the control of the state.

As for the prospects for price growth – potentially many altcoins they can be even higher than that of bitcoin. We have already cited an example with cryptocurrencies ETH and the DASH, which last year showed approximately 8 - and 12-fold increase in prices compared to a 4 × bitcoin does. As you can see on the chart, cryptocurrency ETH after the summer slowdown (not caused her own problems, and the collapse of the platform DAO) gradually recovered the course and accumulating power to leap upward that began in January of 2017, and perhaps still far from over.

The problem, however, is that such growth, and without subsequent rollback can demonstrate the most successful altcoins, and it is likely that in the next period, they will not be able to grow as well. This is largely due to low base effect.

He expressed that the rapid growth in the capitalization of any cryptocurrency successfully implemented, for example, 5 times from the original level, not so difficult, because this level was, this coin is still very low; investors are willing to take a coin that they found promising and are still very cheap, and speculators, playing on the increase, could relatively easily drive the price up, warming up interest even more. However, once this increase is implemented, and the capitalization of acquired a large size, another fivefold increase in prices will not be given so easily. A specific example can be described as follows: it is difficult to imagine a cryptocurrency DASH, consistently sold at a price of 0.6 bitcoins out of the situation where BTC will be in a very difficult crisis, and it is hard to imagine the price of the same bitcoin at $1000. out of the situation where the cost of bitcoin will reach $10 000.

As already noted, over the past few years has been the growth of capitalization altcoins, and relative, expressed in absolute numbers. Year ago 80% of the total capitalization of all cryptocurrencies were in bitcoin, and altcoins was less than 20%. Now this figure has increased 2.5 times and is approaching 50%. In absolute numbers, we see even more impressive growth of capitalization altacaine – about 16 times (1.7 to 28 billion. see graph). Not the fact that this trend will continue for at least the next six months, but for the past year she was pretty typical. This means that the part of big investors when investing in cryptocurrencies or prefers alithina, or at least is a significant part of the investment package may be, due to technological advantages of the cryptocurrencies, or because they concern the future of bitcoin; indeed, if the scaling problem of bitcoin and will not be allowed acceptable for most of the community level, many will decide to sell bitcoins, and this is very greatly strengthened position most reputable altcoins.

chart the growth of capitalization altacaine EXMO

The prospects of some successful altcoins improves that they can provide a number of innovative software developments (such as smart contracts in the case of ETH, or create a duplex payment network in the case of DASH). An interesting point is that some altcoins can “earn interest” just in storage. So, the owners of mastered DASH receive compensation in the form of its crude miners coins (assuming that the owner of masternode continuously supports it online), and the owners of cryptocurrencies that are mined with POS mining, you get, depending on their savings, or that the number of new coins simply by lack of action over stocked in their local wallet of coins (local wallet plays the role of a node).

Sometimes investors “have the right to vote” and may affect the decision of certain questions of the development of cryptocurrencies, however, this influence can be considered significant only at really large savings in the cryptocurrency.

For Aldon investor some concern is that legislative design and security of bitcoin as a financial instrument is somewhat higher than the comparable figure for altcoins. For example, in Japan a bitcoin has been legalized as a means of payment, and, say, litecoin yet.

Apart from a solid altcoins with a good capitalization are weaker coins. Their low capitalization of large traders with the ability to “sway” their course for speculative reasons, why it may be artificially raised (perhaps even repeatedly, and for a substantial period), and then fall again. Thus, all these altcoins, in fact, not correct to assume that investment, and, above all, speculative instrument that manages to make basically the largest and most skillful players (manipulators), and the investor runs the risk of purchase at the inflated price and end up losing a large part of the Deposit. Even without the irreversible drops, sharp price jumps in a random direction, of course, discourage serious investors; quality investment asset should not several times a month or week to test the nerves of the owner on the strength of another catastrophic fall. True, altcoins such as, for example, ETH, at the initial stage of its existence, was one such weak currency, but the prospects of their technology has allowed them to grow dozens of times and to take a worthy place under the sun.

In conclusion, we can say that investing in altcoins at different levels (held, promising, uncertain, etc.) can potentially be much more profitable than investing in bitcoin, but the price of a higher risk of losing money because of subsidence or gradual “sliding” prices.

How to buy bitcoin and have demonstrated in the past year, a great growth of cryptocurrencies DASH and ETH on exchange EXMO, which in addition provides services for reliable storage of any cryptocurrency that you want to leave on your exchange balance. And if you need to transfer to Fiat certain part is stored on the exchange of capital, it will be easy to do as using different output methods in Fiat on the exchange (available in the Bank card, and output to a wide list of e-wallets), and through creation of domestic currency exchange, which is called EX-CODE. Codes EX-CODE are accepted in more than 20 Internet exchanges, so that problems with their exchange for Fiat money, you will not.