Are cryptocurrencies the right investment move in this economic environment?
Major changes are happening to the U.S. economy, and more people are looking for ways to strategically invest for high returns. And cryptocurrencies are getting more visibility than ever before as an exciting investment opportunity.
Cryptocurrencies differ from other investments due to the fact that they are less regulated, meaning investments in bitcoin and other cryptocurrencies can help you avoid hefty taxes.
Bitcoin and other digital coins can be more flexible than government bonds and 401ks, while also proving to be easily liquidated assets. However, as more regulation for cryptocurrencies are likely on the horizon, these may be subject to high capital gains taxes moving forward.
What do I need to know about cryptocurrencies?
A cryptocurrency is a digital currency that uses cryptography, with bitcoin being heralded as the current leader of the pack. Since its 2009 inception, the coin has had its ups and downs, reaching a $2 billion peak in market value before dropping by 10%.
The key to understanding the intrinsic value in a cryptocurrency comes from blockchain technology, which is the infrastructure of bitcoin. The technology is preferred by some investors due to the fact that it uses a digital and decentralized ledgers that can record payments and transfer a cryptocurrency with monetary value in a safe and efficient manner.
All of the currency issuance, transaction processing and verification of bitcoin transactions take place using peer-to-peer technology, allowing all this data to be carried out collectively by the network.
The hype behind the cryptocurrency comes from the fact that it can’t be manipulated by the government. However, the fact that there is no central authority surrounding bitcoin cannot ensure the security of cryptocurrency transactions or potential hacks to someone’s digital wallet.
A recent survey by Blockchain Capital discovered that 30% of people between the ages 18 to 34 would rather invest $1,000 in bitcoin than in government bonds and stocks.
What other cryptocurrencies should I know about?
One of bitcoin’s largest rivals is Litecoin, which helps to process smaller transactions at a quicker rate. Founder Charles Lee calls the coin a “silver to bitcoin’s gold.”
Another popular cryptocurrency investment stems from Ripple, developed by OpenCoin in 2012. Its currency symbol is XRP and it uses a similar mathematical foundation as bitcoin. Through this technology, funds can be transferred within seconds, faster than bitcoin.
MintChip has also made a name for itself as a budding cryptocurrency, but it differs from other digital coins as it was developed by the Royal Canadian Mint, a government institution. The technology behind it uses a smart card that holds electronic value, which can be transferred securely from one chip to another and it is backed by the Canadian dollar.
What's the risk involved with cryptocurrencies?
Cryptocurrencies are susceptible to large price swings, such as the drop that bitcoin experienced in April 11, 2013 from $260 a unit to $130 in six hours. If you’re serious about investing in bitcoin, you should seek to invest elsewhere.
Another issue surrounding bitcoin is the possibility of bots artificially inflating coin prices and manipulating the markets. In order to keep an eye on bots, you need to train yourself to learn abnormal trading patterns.
The main indicators of bot activity are price momentum and volume, as signals that the two are coordinated could spell trouble. Another way of spotting a bot is by using a trade analytics platform that will do the watching for you.
If you’re seeking to diversify your investment in the cryptocurrency market, the higher percentage of your investment should be allocated to the least volatile coins. Inversely, a smaller percentage should be given to the least stable, which could end up yielding the highest return.
A mistake that many inexperienced investors make is to sell their bitcoin once its price dips. Avoid selling the cryptocurrency and rushing to buy another digital coin if bitcoin’s price falls. If you make this move, you will end up allocating a lot of illiquid assets on a coin where its price is being pumped artificially.
How do I avoid common cryptocurrency pitfalls?
The new year brings with it a change to the technology used in securing cryptocurrencies. Last year included a number of cybersecurity incidents, prompting a change away from central security and into client-side security. These breaches have pushed consumers to prefer decentralized exchanged and storage options.
Edge founder and CEO Paul Puey says that digital wallets are moving towards avoiding storing user data on a centralized server, instead encrypting data on the user’s own device. If you’re serious about investing in, seek out a wallet that offers these security functionalities, while still offering easy access to monitor and manage your assets.
There are certain cryptocurrencies that experts believe are still undervalued and will likely see changes to their regulations due to the continuous climb of their markets. Bitcoin, Ethereum, Monero and Ripple are on the up and up.
Ripple is only trading at $1.55 per coin at the moment, despite having the third highest market cap in the market. Ethereum and Monero are expected to surge due to their practical applications in the payments world, as well as their great investment potential.
So.... should I invest in cryptocurrencies?
If you’re still on the fence on whether or not you should put your assets in digital coins, do your research on ICOs you might invest in. Coins linked to industries that you know and understand can give you a better idea of the cryptocurrency’s technology and how it could change the market.
Also, keep in mind that while bitcoin may have lost nearly half its value over the last month or so, this isn’t the first time the cryptocurrency has seen a decline like this one. Bitcoin crashes in the past have experienced a complete rebound later on, while eventually climbing above its previous peak value.
Bitcoin expert and former Skype COO Michael Jackson believes bitcoin could be worth 100 times what it is today.
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