Should You Invest In Cryptocurrency? Now's The Time

Investing in cryptocurrency is a risky business. It's possible to get rich quick, but it's also very possible to lose it all. Crypto is a volatile asset, and investors need to understand that owning it involves taking on a lot of risk. However, for investors who understand how to manage risk, crypto could present great opportunities.

Cryptocurrency is a decentralised and secure digital currency, based on blockchain technology. It offers new investment opportunities, but it's not always a safe bet. Crypto exchanges are vulnerable to being hacked and becoming targets of other criminal activity, and there's also the risk of losing your private key if you opt for offline cold storage.

The price of Bitcoin, the leading cryptocurrency, temporarily reached an all-time high of $72,000 earlier this year. The surge came after regulators in the UK gave the go-ahead for certain investment firms and institutions to invest in crypto-trading products. This follows a similar move by US regulators, who in January approved the first spot Bitcoin exchange-traded fund (ETF).

Despite the risks, cryptocurrencies and the blockchain industry are growing stronger. Financial giants such as Block and PayPal are making it easier to buy and sell crypto on their platforms, and Tesla purchased $1.5 billion worth of Bitcoin in early 2021.

If you're thinking about investing in crypto, it's important to do your research and understand the technology behind it. Treat it as a means of slowly growing your existing wealth, rather than an all-or-nothing gamble.

Crypto's volatility and risk

Cryptos Volatility and Risk

Cryptocurrency is a very volatile asset class. Crypto asset prices are influenced by market speculation, which is often driven by hype and the intertwined elements of fear, uncertainty, and doubt (FUD). This volatility is further accentuated by limited liquidity, regulatory changes, potential cybersecurity breaches, official announcements, news reports, and prevailing social media sentiment. Due to these factors, the crypto market is considered one of the most risky and volatile financial markets in the world.

The more volatile an asset is, the riskier it is considered to be as an investment. Volatility is measured by calculating the standard deviation of the asset's price over time. This is known as "historical volatility". Another way to measure volatility is through "beta", which measures how volatile a stock is relative to the broader market.

The high volatility of cryptocurrencies means that they can offer either higher returns or higher losses over shorter periods compared to less volatile assets. This makes crypto a very risky investment, and investors need to be aware of the potential for significant upward and downward movements in the market.

One of the biggest risks associated with investing in cryptocurrency is the loss of capital. With Bitcoin down more than 60% over the past 12 months, investors could face significant losses. Additionally, there is a risk of government regulations, as many governments have yet to fully regulate the use and trade of cryptocurrencies. This makes it difficult to know what to expect in terms of legal and financial risks. There is also a possibility that cryptocurrencies could be banned by central banks, rendering them worthless.

Another risk to consider is fraud. As the crypto industry is largely unregulated, fraud is common, and thousands of investors have lost money. Hacks and cybersecurity threats are also prevalent in the crypto space, and it can be difficult to recover stolen funds.

To manage the risks associated with investing in cryptocurrency, it is important to diversify one's portfolio and implement risk management strategies. Investors should also be cautious and do their due diligence before investing, as there is a high level of uncertainty and risk involved in the crypto market.

Crypto ETFs

Some popular Crypto ETFs include:

• IShares Bitcoin Trust ETF
• Grayscale Bitcoin Trust
• Fidelity Wise Origin Bitcoin Fund
• ARK 21Shares Bitcoin ETF
• Bitwise Bitcoin ETF Trust
• ProShares Bitcoin Strategy ETF

When considering investing in Crypto ETFs, it is important to remember that they are still subject to the same risks as the underlying cryptocurrencies. These risks include price volatility, regulatory changes, fraud, and hacks. It is also important to note that Crypto ETFs may not always perfectly track the price of the underlying cryptocurrencies, and there may be a delay in reflecting price changes.

Overall, Crypto ETFs can be a good option for investors who want to gain exposure to the crypto market while diversifying their risk and benefiting from the regulatory protections of traditional investment vehicles.

Crypto's long-term potential

Cryptos Long-Term Potential

Cryptocurrency is an extremely volatile asset and investors need to understand that it involves taking on a great deal of risk. However, for investors who understand how to manage risk, crypto could present great opportunities.

Bitcoin is the largest cryptocurrency in the world by market cap. You can use it to make purchases online and offline, or view it as a buy-and-hold asset in your investment portfolio. It has become more of a safe-haven investment than a currency, earning it a place within your long-term cryptocurrency portfolio.

Ethereum is the second-largest cryptocurrency by market cap. The token can be used as a store of value, but Ethereum has also emerged as one of the best platforms for decentralized apps, also referred to as dApps.

Cardano is another cryptocurrency to invest in for the long term. The platform gained a strong foothold while it had one major benefit over Ethereum: a proof-of-stake protocol. Cardano’s proof-of-stake protocol is faster, cheaper, and more energy-efficient.

Polkadot has become one of the best long-term cryptocurrencies to buy since its launch in 2020. It’s not only a cryptocurrency but also a blockchain network where developers can build innovative decentralized systems.

Chainlink ranks as the fifth-best cryptocurrency to invest in for the long term. Launched in 2014, the Ethereum-based Chainlink network provides real-time data from off-blockchain to on-blockchain smart contracts via nodes and oracles.

Benefits of Investing in Cryptocurrency for the Long Term

• Buying and holding cryptocurrencies may create a path toward financial independence while helping you beat inflation over time.
• As a store of value in the long term, the more real-world applications it has, the more likely it is that its value will increase.
• The long-term cryptocurrency investment gives you direct control over your portfolio, which means lower fees and better access to your investment.
• Cryptocurrencies give you a tool to build personal wealth over the long term if you invest in a small but diversified group of coins.

How to Choose the Best Long-Term Cryptocurrencies for Your Investment Portfolio

• To buy into or invest in cryptocurrencies for the long term, you need to have a high-risk tolerance. Cryptocurrency values rise and fall drastically, and there are no guarantees they will not end up collapsing.
• You need to understand why you are buying crypto. For instance, if you are years away from your retirement date and decide that you need to allocate a certain percentage of your investment portfolio to aggressive investments, then long-term cryptocurrencies could be one avenue into high returns.
• You need to know how and where you intend to purchase crypto. Peer-to-peer platforms and cryptocurrency exchanges operate under little or no regulation, which means that as an investor, you lack the oversight and protection offered by mainstream investment platforms and banks.
• Which crypto goes into your long-term investment portfolio? Bitcoin has the advantage of being the firstborn, having the largest market share, and currently being the most popular. These traits allow bitcoin to maintain and increase value over time, making it among the safer long-term cryptocurrency investment assets.

Crypto's environmental impact

The environmental impact of cryptocurrencies has been a cause for concern. Crypto-assets can require significant amounts of electricity, which can result in greenhouse gas emissions, as well as additional pollution, noise, and other local impacts on communities living near mining facilities.

The White House published a report in 2022, which found that global electricity usage for crypto-assets was estimated to be between 120 and 240 billion kilowatt-hours per year, exceeding the total annual electricity usage of many individual countries. This is comparable to the annual electricity usage of all conventional data centres in the world.

The report also highlighted the environmental impacts of crypto-asset mining, which include:

• Electronic waste: Mining hardware quickly becomes obsolete, leading to significant e-waste.
• Water usage and contamination: Large mining farms have discharged hot or warm water into lakes or other water bodies, raising concerns about raising temperatures or contaminating these water bodies.
• Air and water pollution: Crypto mining operations can generate air and water pollution, as well as noise pollution, affecting local communities.
• Fossil fuel usage: Crypto mining often relies on energy procured from burning fossil fuels, contributing to greenhouse gas emissions.

The use of energy-intensive consensus mechanisms, such as Proof of Work (PoW), by Bitcoin and Ethereum blockchains, has been a major contributor to the environmental impact of crypto-assets. However, it is important to note that not all cryptocurrencies depend on large amounts of energy. Alternatives like Proof of Stake (PoS) can dramatically reduce power usage.

The environmental impact of cryptocurrencies has led to calls for responsible development, including minimizing greenhouse gas emissions, reducing energy intensity, and powering crypto-assets with clean energy.

Crypto's legality and government regulation

Cryptos Legality and Government Regulation

The legality of cryptocurrencies varies across the world. Some countries have embraced the new technology and implemented progressive regulations, while others have imposed strict restrictions or even banned them outright. As of July 2024, cryptocurrencies are legal in 33 countries, partially banned in 17, and generally banned in 10.

United States

Cryptocurrencies are not considered legal tender in the US, but cryptocurrency exchanges are legal and regulated by various government agencies. The SEC considers cryptos to be securities, while the CFTC has taken a more relaxed approach, describing Bitcoin as a commodity. The US Treasury has emphasised the urgent need for crypto regulations to combat criminal activities.

Canada

Canada does not consider cryptos legal tender, but they can be used to buy goods and services. Cryptocurrency exchanges are legal and required to register with FinTRAC. Canada has been proactive in regulating cryptos, primarily under provincial securities laws. The Canada Revenue Agency has taxed cryptocurrencies since 2013.

Singapore

Singapore has taken a relatively friendly position on cryptos. Cryptocurrencies are not legal tender, but the Monetary Authority of Singapore (MAS) regulates the issue of digital tokens. Cryptocurrency exchanges and trading are legal, and MAS has issued licenses to several crypto service providers.

Australia

Australia has a progressive approach to crypto regulations. Cryptocurrencies are legal and treated as property, subject to capital gains tax. Cryptocurrency exchanges are also legal and must register with AUSTRAC, complying with AML/CFT reporting obligations.

Japan

Japan has the world's most progressive regulatory climate for cryptos, recognising them as legal property under the Payment Services Act. Cryptocurrency exchanges are legal but are subject to strict AML/CFT and cybersecurity requirements, as well as custodian service provisions.

South Korea

In South Korea, cryptos are not considered legal tender, and exchanges are part of a closely monitored regulatory system. Cryptocurrency taxation is a grey area, but the government has indicated it is considering imposing a tax on crypto transactions.

China

China has a reputation for harsh crypto regulation. Cryptocurrencies are not legal tender, and domestic cryptocurrency exchanges are banned. In 2021, China banned all domestic cryptocurrency mining and outlawed cryptos outright.

India

The status of cryptos and exchanges in India is unclear, as new regulations are being considered. A bill prohibiting all private cryptocurrencies is in circulation but has not been voted on. A 30% tax is levied on crypto investments.

United Kingdom

The UK has a measured approach to crypto regulations. Cryptocurrencies are not legal tender, and exchanges have registration requirements with the FCA. Cryptocurrency gains are subject to capital gains tax. The UK is likely to maintain consistency with EU regulations in the short term.

Switzerland

Switzerland has adopted a progressive stance towards crypto regulations. Cryptocurrencies are considered assets and are subject to the Swiss wealth tax. Cryptocurrency exchanges must obtain a license from the Swiss Financial Market Supervisory Authority (FINMA) to operate.

European Union

Cryptocurrencies are broadly legal across the EU, but exchange regulations vary by member state. Cryptocurrency taxation also varies, with capital gains tax rates ranging from 0% to 50%. The EU has implemented anti-money laundering directives, tightening KYC/CFT obligations and reporting requirements.

Latin America

Latin America has a diverse range of crypto regulations. Some countries, like Bolivia, have comprehensively banned cryptos, while others, such as Mexico, Argentina, and Brazil, commonly accept them as payment. El Salvador became the first Latin American country to make Bitcoin legal tender in 2021.

Frequently asked questions