Is Crypto a Good Investment?

With an estimated 420 million crypto investors worldwide, accounting for 4.2% of the population globally, you might wonder what the hype is about and whether crypto is a good investment. In this guide, we’re answering all your questions about crypto investing, starting with the obvious - is crypto a good investment? 

What kind of investment is cryptocurrency?

Cryptocurrency is a kind of digital asset, or virtual money if you will, secured by blockchain technology. There are many different kinds of cryptocurrencies, and you can use different cryptocurrencies for different things. Some cryptocurrencies serve as purely speculative assets, while others have more utility, and indeed their own ecosystems with unique financial opportunities.

All this to say, crypto is a unique kind of investment. Indeed, financial authorities around the world for the most part haven’t agreed on the kind of investment cryptocurrency is. Owning Bitcoin isn’t like owning a stock, because Bitcoin doesn’t generate revenue through products or services, nor issue dividends. There’s no board of directors for a given cryptocurrency, or generally any centralized group setting goals.

Cryptocurrencies also can’t be likened to commodities, as there’s no raw material production. And while you can liken crypto to a currency - as in, something you can use to pay for goods and services - many vendors still don’t accept crypto as a means of payment. So in summary, crypto may be considered a new kind of asset or investment type altogether. 

Is crypto a good investment?

Crypto is still largely considered a high-risk investment due to market volatility, but even hedge funds have been more openly investing in cryptocurrencies in recent years, which can leave the average investor wondering if they’re missing out.

Like with all kinds of investments, there are good and bad investments in crypto. Much of it depends on why and how you’re investing in crypto, whether that’s for the short-term or the long-term. Both can be profitable… or indeed the opposite. 

Is crypto a good long-term investment?

You’ve probably seen the term Bitcoin billionaires thrown around in the news. The reality is many of these investors bought Bitcoin back when it first launched and was worth $0.01. For these investors, Bitcoin has been an incredibly profitable long-term investment, regardless of the highs and lows of the crypto market in recent years. 

Will every cryptocurrency eventually do this? No. But many investors have made significant gains by adopting a cryptocurrency early and later selling when the price soars. 

Although cryptocurrencies have a reputation for being volatile, the crypto market has outperformed other financial markets in previous years.

Of course, long-term investing isn’t the only option available to investors.

Is crypto a good short-term investment?

This very much depends on how much time you can dedicate to it. Crypto markets run 24/7 and prices move fast. While day traders who have a solid understanding of price indicators, market sentiment, and technical charts can make considerable short-term profits from price movements - you’ll need a good understanding of all these factors to do the same.

Read next: 5 best crypto charts and how to read them

Is it safe to invest in crypto?

Crypto is as safe an investment as any other speculative asset provided you follow some basic ground rules:

• Never invest more than you’re willing to lose

• Use reputable crypto exchanges to buy, trade, and sell cryptocurrencies

• Do your own research before investing in any cryptocurrency to understand the risks involved

• Store long-term investments with a secure, offline wallet and follow best practices to keep your crypto safe

Read next: What are the best crypto exchanges and what are the best crypto wallets?

Why do people invest in crypto?

Generally, people invest in crypto for the same reasons they invest in any other asset - to make money. However, crypto is fairly unique in that many investors believe in the underlying tenets of cryptocurrencies, such as:

• Decentralization: Cryptocurrencies operate on decentralized networks, eliminating the need for central authorities like banks or governments. Transactions are verified and recorded by a distributed network of nodes (computers) rather than a single central entity.

• Blockchain technology: Most cryptocurrencies use blockchain technology to maintain a secure and transparent ledger of all transactions. A blockchain is a decentralized and immutable digital ledger that ensures transparency and trust in the system.

• Cryptography: Strong cryptographic techniques secure transactions and control the creation of new units. Private keys and public keys are used to authenticate users and enable secure transactions.

• Ownership and control: Cryptocurrencies give users direct ownership and control over their digital assets. Users have their private keys, providing control over their funds and data.

• Transparency: All transactions are publicly recorded on the blockchain, making them accessible for anyone to view and verify. Transaction details are pseudonymous, with wallet addresses representing users instead of personal information.

• Immutable transactions: Once a transaction is added to the blockchain, it cannot be altered or deleted, ensuring the permanence and security of the ledger.

• Global accessibility: Cryptocurrencies can be accessed and used by anyone with an internet connection, promoting financial inclusion.

• Financial freedom: Cryptocurrencies empower individuals by providing more control over their finances, reducing reliance on traditional banking systems.

• Community and Governance: Many cryptocurrencies have active communities and employ various governance models to make decisions about protocol changes and upgrades.

Why is crypto a popular investment?

Investors buy crypto for several reasons, including investment in an innovative digital asset, short-term speculation, or portfolio diversification as an alternative to traditional assets. More than 4% of the global population owns crypto now, including corporations and hedge funds - and crypto adoption continues to rise year on year.

What are the risks of investing in crypto?

There are multiple risks associated with investing in crypto, including:

• Volatility: Cryptocurrency prices can be extremely volatile, leading to significant price fluctuations over short periods, which can result in substantial gains or losses.

• Lack of regulation: The cryptocurrency market is relatively unregulated compared to traditional financial markets, making it susceptible to fraud, scams, and market manipulation.

• Security concerns: Cryptocurrency exchanges and wallets are targets for hackers. If your holdings are not properly secured, you risk losing your assets.

• Market sentiment: Cryptocurrency prices can be influenced by market sentiment, news, and social media, leading to rapid and unpredictable price swings.

• Lack of consumer protections: Unlike traditional banks, cryptocurrencies do not offer the same level of consumer protections, such as deposit insurance or chargeback options.

• Market manipulation: The relatively small market size of some cryptocurrencies can make them more susceptible to price manipulation by large players or "whales."

• Loss of private keys: If you lose access to your private keys or wallet, you may permanently lose access to your cryptocurrency holdings.

• Scams and Ponzi schemes: Cryptocurrency markets have seen various fraudulent schemes and scams that target unsuspecting investors.

• Inadequate due diligence: Investing without proper research and understanding of the cryptocurrency project, team, and technology can lead to poor investment decisions.

• Tax implications: Tax treatment of cryptocurrency transactions can be complex and vary by jurisdiction, potentially leading to unexpected tax liabilities.

• Lack of fundamental value: The value of many cryptocurrencies is primarily driven by speculation, and some may lack a clear use case or fundamental value proposition.

• Technological risks: Cryptocurrency networks and protocols are continuously evolving, and technical vulnerabilities or flaws can pose risks to the security and functionality of a cryptocurrency.

• Long-term viability: The long-term sustainability and adoption of specific cryptocurrencies are uncertain, and not all projects may survive or thrive.

Could crypto become the new global currency?

For any cryptocurrency to become a new global currency, it would likely require some regulation and oversight from financial authorities around the world in order for countries to adopt it. While Bitcoin has become a more common means of payment globally, it’s still a long way away from this as authorities around the world struggle to know how to classify and regulate Bitcoin and other cryptocurrencies. For many investors, any oversight from centralized institutions defeats the point of cryptocurrencies.

What do financial experts say about investing in crypto?

It’s a mixed bag when it comes to financial experts and crypto, with some praising the innovative asset and others swearing it off. 

Warren Buffett has previously stated he doesn’t believe Bitcoin has utility and sworn off investing in it, though notably, an analysis of Buffet’s investment firm stock portfolio in 2023 revealed the best-performing stock was  Bitcoin and crypto-friendly Nubank. Meanwhile, the CEO of George Soros’ fund confirmed the portfolio included Bitcoin.

It’s far from the only fund exploring crypto-related investments. Fidelity, Goldman Sachs, and Morgan Stanley have all begun offering or exploring crypto-related services.

Should you invest in crypto?

Crypto can be a profitable investment if you have a high tolerance for risk. It can also be an option for investors looking to diversify their investment portfolio. As ever, you should never invest more than you’re willing to lose in any financial asset.

How do you invest in crypto?

If you’ve decided you want to invest in crypto, it’s easy. Just follow these steps:

1. Find a reputable crypto exchange and create an account

2. Research and choose a cryptocurrency to purchase

3. Use your chosen crypto exchange to purchase your chosen cryptocurrency

4. Monitor the market and watch how your asset performs

Next: Learn about bull market trading strategies and bear market trading strategies.