This is not investment advice, and should be used as informational only.
There are endless investment choices available in today’s day and age for aspiring investors. From stocks, bonds, funds and real estate to digital assets such as non-fungible tokens (NFTs), deciding where to place your cash can be a challenge.
Another well-known contender that has entered the investment arena in recent times is cryptocurrency. If this is something that has piqued your interest but you have little knowledge about, read on to see if this is an asset to add to your investment portfolio. You can also find some helpful guidance on managing your personal finances at FinancialFit.com.
What Is Cryptocurrency?
Unlike fiat money which exists in paper form, cryptocurrencies such as Bitcoin are a digital or virtual form of currency. It also differs from physical money, as it is not backed by any underlying assets such as gold or silver, hence it has no intrinsic value. However, just like physical money, cryptocurrency can be used to purchase goods and services in certain stores and it can also be traded to make a profit. This could be by investing directly into crypto funds or companies or by buying or selling through a crypto exchange.
Cryptocurrency is secured by something known as ‘blockchain’ technology. Blockchain is a public, online ledger that allows the processing and recording of every cryptocurrency transaction ever made. It also ensures transactions are secure and as this technology is decentralized it enables cryptocurrency to exist outside the control of governments or any other centralized entity.
Is Cryptocurrency a Good Investment?
Due to its volatile nature, cryptocurrency investment is not for the faint-hearted and there are considerable risks involved such as the vulnerability of exchanges to being hacked and the possibility of regulation in the future. However, there is also the potential to realize significant profit for the reasons stated below:
Supply Cap
Unlike paper money which can be printed, some cryptocurrencies have a limited supply which means once the maximum supply is reached no more coins will be produced. As an investor, this ensures your investment will not be diluted and as demand exceeds supply there is the potential to profit from higher prices, making significant profits.
Volatility
Compared to other more traditional types of investment choices, cryptocurrency is one of the most volatile. The speculative nature of this asset can result in huge profits in a relatively short space of time. However, some may argue this makes it more suitable as a trading option rather than as an investment choice.
Inflation Hedge
As it is not linked to a particular asset or economy, unlike physical currencies such as the U.S. dollar or the Euro, the value of cryptocurrency is a reflection of supply and demand. This may make it a better hedge against rising prices as it holds its value over time. Unlike the purchasing power of physical money, which can reduce over time as a result of inflation and printing by governments, the limited supply of certain cryptocurrencies can offer a better hedge against inflation.
If you are thinking of venturing into the world of cryptocurrency with the information in this article you can now make an informed decision as to whether this digital asset should be included in your investment plan.
