Should you Invest in Cryptocurrency?
Currency in the digital age, cryptocurrencies are said to be the greatest thing since “sliced bread.”
Many people know of the meteoric, unprecedented rise in the price of Bitcoin, the mysterious cryptocoin giant that began at USD $0.08 and rose to over $20,000 in 7 years. What people don’t know is how cryptocurrencies work, how to invest in them, and if they should invest at all.
There is no precedent to look back on for aid in understanding how cryptocurrencies work because there has never been anything like them. They are not like stocks because there is no company that has an effect on the cost of the stock.
In addition, it is hard to understand how something that has no physical presence can be worth as much as $20,000 to people. In economic terms, cryptocurrency is the most extreme level of Fiat money, or money that is intrinsically worthless without a government saying what it is worth, like the US dollar. It is an extreme version because there is no physical money, government, or any proof that the money even exists.
Also, no one knows for sure who actually created Bitcoin and some other currencies. How they are getting people to believe it is worth anything, let alone $20,000 for a single Bitcoin.
Another factor that worries people when investing in cryptocurrencies is that around 7 years ago, very few people knew what they were. Currencies like Bitcoin were in their nascent stage, at a time where only computer genius’ could “mine” the currency. Financial brokers, advisors, and Wall Street are all unsure of how to advise and invest or even what these virtual currencies actually are.
For many-a-gambler, there is a real allure to mining 50 “shares” of Bitcoin at $0.08 and then selling those “shares” 7 years later at $20,000 a “share.” The majority of cryptocurrencies are very volatile and their costs fluctuate wildly and unpredictably. There is also little to no way of predicting how and when the costs will shift. Bitcoin’s meteoric rise has people like myself, who were too slow to get on the train scrambling to find the next Bitcoin, investing in currencies, like LiteCoin, Ripple, and Ethereum. It is one thing for millionaires with money to spare to invest in these pho-stocks, but the real question is if it worth it for the everyday man to invest in a cryptocurrency.
The first obstacle in answering that question is that it is challenging to actually purchase or mine the currency depending on the currency in question. Bitcoin requires an online mining algorithm written by the miner or the purchase of a machine through many of the cryptocoin wallets that trade the coins. Most other currencies are traded through the various virtual wallets.
In my opinion, most currencies that are already trading at $300 or more are not worth investing in because they are volatile, and it is so easy to lose money by the droves, unlike the stock markets’ usual gradual fluctuations. But there is merit in investing small amounts of money in low risk, high reward alternatives such as Ripple and LiteCoin.