The Future Of Crypto: Invest Now Or Later?

Investing in cryptocurrencies is risky due to the potential for high losses from security breaches. However, it is possible to make a lot of money by investing in them. Crypto assets are volatile and can experience significant price swings due to various factors, including market speculation, regulatory news, technological advancements, and macroeconomic trends.

Despite the risks, cryptocurrencies and the blockchain industry are growing stronger, and investors are increasingly able to access institutional-grade custody services. Financial giants like Block and PayPal are making it easier to buy and sell cryptocurrency on their platforms.

If you choose to invest, it's important to maintain a diversified portfolio that includes several different types of investments to reduce your overall risk exposure. As a rule of thumb, don't invest more than 10% of your portfolio in risky assets like Bitcoin.

Crypto is a risky investment with high volatility

Cryptocurrency is a risky investment due to its high volatility and the potential for significant losses from security breaches. Crypto assets are extremely volatile, experiencing large price movements over short periods. For example, in 2022, Bitcoin fell more than 75% from its all-time high. This volatility is driven by various factors, including market speculation, regulatory news, technological advancements, and macroeconomic trends.

The decentralised and unregulated nature of crypto exchanges increases the risk of criminal activity, such as hacking and theft. Additionally, the lack of consumer protections, similar to those found in traditional financial products, adds to the risk. As a result, investors must be cautious and ensure they understand the risks involved before investing in cryptocurrencies.

To mitigate these risks, investors can consider diversifying their portfolio by investing in a range of cryptocurrencies, utilising crypto wallets for added security, and investing in crypto ETFs, which offer a more regulated option. It is also crucial to only invest money you can afford to lose, as there is always the possibility of losing your entire investment in the volatile crypto market.

While crypto presents high risks, it also offers the potential for significant returns. The decentralised nature of blockchain technology, which cryptocurrencies are built on, offers new opportunities for creating value and disrupting traditional industries. Additionally, the increasing adoption of crypto by companies and individuals suggests a maturing industry, indicating that crypto may be here to stay.

In summary, crypto is a highly volatile and risky investment. However, with proper risk management, diversification, and caution, it can also present lucrative opportunities for investors.

Crypto is a decentralised and secure digital currency

The decentralised nature of blockchain means that crypto is not controlled by any central authority. Transactions are validated through a competitive process called proof of work, or Bitcoin mining. This is an incredibly resource-intensive process, which rewards successful miners with Bitcoins.

Crypto is a secure digital currency, but it is not without its risks. Cryptocurrency exchanges are vulnerable to hacking and other criminal activity, and there is a risk of losing your private key if you opt for offline cold storage. Crypto is also highly volatile, and its value can fluctuate dramatically.

Despite these risks, crypto is a good investment if you want direct exposure to the demand for digital currency. It is also a useful way to diversify your portfolio, as cryptocurrencies like Bitcoin have historically shown few price correlations with the U.S. stock market.

Crypto exchanges are vulnerable to hacking and criminal activity

Hackers employ numerous means to perpetrate cryptocurrency hacks. Understanding how these work can help owners and traders keep their money safe. Here are some of the most common types of attacks:

• Phishing: One of the most common types of digital attacks, this involves malicious actors sending emails that lure crypto owners into divulging sensitive information or downloading malware that could allow the hacker to access their crypto wallet and steal their coins.
• Malicious code: Cryptocurrencies and the software that facilitates them are all built on code, which could contain vulnerabilities that hackers can exploit. They can manipulate the code at any weak point of the crypto infrastructure to enact crypto exchange hacks or bridge attacks.
• Key theft: Crypto wallets and exchanges require owners to use keys to access their coins, and if cybercriminals manage to steal these keys, they can easily execute cryptocurrency hacks.

Crypto exchange security is of utmost importance, especially as investors and traders increasingly demand that exchanges protect their funds. Bybit CEO Ben Zhou notes that exchanges act as a single point of failure and are susceptible to the same security issues as all other websites. Zhou thinks that investing in security should be one of the highest priorities on an exchange platform’s agenda, and exchanges need to better address vulnerable areas and apply multiple security layers for penetration testing.

To protect against hacks and theft, it is recommended that investors use reputable exchanges and secure crypto wallets. A "cold" wallet, which is not connected to the internet, is a more secure option for storing cryptocurrencies. On the other hand, "hot" wallets are always connected to the internet and are therefore more vulnerable to hacks.

Crypto is a maturing industry with growing adoption

The crypto industry is still relatively young, but it is maturing. Cryptocurrencies and the blockchain industry are growing stronger, with much-needed financial infrastructure being built and investors gaining access to institutional-grade custody services. This is evident in the increasing adoption of crypto by companies. Financial giants such as Block and PayPal are making it easier to buy and sell cryptocurrency on their platforms. Additionally, companies like Block have poured hundreds of millions of dollars into Bitcoin and other digital assets. Tesla, for example, held almost $2 billion worth of Bitcoin in early 2022. While it sold off most of its crypto holdings, it still owned $580 million in Bitcoin as of September 2024.

The increasing adoption of crypto by companies suggests a maturing industry and safer investments. The crypto market is also becoming more regulated, which should reduce uncertainty and be bullish for investors. For instance, the US made progress in establishing crypto legislation in 2024 with the passing of the Financial Innovation and Technology for the 21st Century (FIT21) Act.

The growing adoption of crypto is also reflected in the number of individual crypto owners. Individual wallets containing at least one Bitcoin (BTC) reached one million in September 2024, indicating that the long-term sentiment towards these tokens remains strong despite downward pressure on prices caused by broader market conditions.

The maturation of the crypto industry is further supported by the development of financial products and services. Crypto futures markets are being established, and crypto ETFs are becoming available, providing investors with more options to gain exposure to the crypto market while potentially mitigating risks through diversification.

While the crypto industry is maturing, it is important to remember that it is still a young and volatile market with a lot of speculation. Timing the market can be challenging, and there are risks involved, including the potential for significant price swings and the presence of opportunistic scammers. Therefore, it is crucial for investors to understand the risks, do their research, and make informed decisions when considering investing in crypto.

Crypto has the potential to be a non-correlated asset

As with any investment, it's important to understand the risks and potential rewards. Crypto assets are no exception. One key consideration when investing in cryptocurrencies is their potential correlation with other financial markets.

Anthony "Pomp" Pompliano, the founder and partner at Morgan Creek Digital Assets, an investment company that provides access to crypto assets for institutional investors, has stated that Bitcoin is a "non-correlated asset". He notes that the correlation between Bitcoin and traditional stock market indices, such as the S&P 500 and the Dow Jones Industrial Average, is "near zero". This suggests that the performance of cryptocurrencies may not be strongly linked to the performance of stocks, providing a potential diversification benefit for investors.

The non-correlation of crypto assets with traditional markets can be advantageous for investors looking to reduce their exposure to market volatility and spread their risk across different asset classes. By including cryptocurrencies in their portfolios, investors can potentially lower the overall risk of their investments while still taking advantage of the potential upside that crypto offers.

However, it's important to remember that the cryptocurrency market, including Bitcoin, is highly volatile and can be subject to significant price swings due to various factors, including market speculation, regulatory news, technological advancements, and macroeconomic trends. As such, investing in crypto assets carries a high level of risk and may not be suitable for all investors.

When considering investing in cryptocurrencies, it's essential to do your own research, understand the underlying technology and use cases, and only invest what you can afford to lose. Additionally, it's crucial to prioritize cybersecurity and use reputable exchanges and secure crypto wallets to protect your investments from potential hacks and theft.

Frequently asked questions