Investing in cryptocurrencies doesn’t come without risks, but neither does any other investment type. This rundown of the advantages and disadvantages of investing in cryptocurrency (which is by no means an exhaustive list) can help you better understand the risks and rewards.
PRO: Popular cryptocurrencies have shown huge growth in the little time they’ve been in existence. Many people are optimistic about the future of Bitcoin and some alt coins as they continue to grow in value and increasingly gain attention from non-tech people. Recently, Bitcoin surpassed the $8,000 mark and it doesn’t appear to be dipping soon. Many analysts argue that Bitcoin is the new gold and even predict its value will rise as high as $25,000 within the next five years. While no one can predict the future of a cryptocurrency's value (despite the many who try,) there’s a lot of optimism about the potential value of these new investments. The cryptocurrency market is young — but that doesn’t mean the news is all bad.
CON: Cryptocurrency values are highly volatile. While people are optimistic about the future of cryptocurrencies, the market is still quite young and the price of coins can change by hundreds — or even thousands — of dollars in a day. These shifts can occur for a variety of reasons: Largely, the movement hinges on the potential of cryptocurrencies to become mainstream. Things like good or bad press and statements about cryptocurrencies viability from government officials can have a big effect on the price of cryptocurrencies. However, as the market matures and cryptocurrencies like Bitcoin become more mainstream, the price is expected to settle down. For now, this volatility makes some investors wary of jumping into the market.
CON: Bitcoin and other popular cryptocurrencies like Litecoin or Ether look like they're experiencing an economic bubble. At its core, a bubble is a situation in which assets are overvalued and prices increase based on speculation. However, there are nuances when it comes to cryptocurrency and many experts in the space don’t think they’re overvalued at all. If I thought it was just a bubble and cryptocurrencies would crash and burn, I wouldn’t be talking to you about its benefits at all.
PRO: If Bitcoin is in a bubble, it isn't necessarily a traditional economic type of bubble that’s destined to “pop” in a way where we would see a period of rapid decline in value followed by stagnation. It’s not really like the dotcom bubble and it’s not quite like Tulip mania. While no one can predict the future of cryptocurrency with 100% accuracy, so far Bitcoin hasn’t experienced the same type of burst as other bubbles have, like the dotcom boom. More importantly, if there is a bubble, it’s hasty to say that cryptocurrencies are priced in a way that surpasses their intrinsic value. Cryptocurrencies aren’t hot air. They have value and the technology on which they sit has huge value and implications for the future of how we conduct transactions.
CON: We don’t know what the next Bitcoin will be, or if Bitcoin will continue to be the highest-valued cryptocurrency. There are hundreds of coins coming out now that are available for purchase, but not all of them will be lucrative. With fiat currencies, we usually only have one option in a country. With so many coins in the cryptocurrency space, it can be intimidating and challenging to choose which ones are worth investing in.
PRO: It doesn’t look like cryptocurrency is going anywhere soon. While currently we mostly use fiat currencies to conduct monetary transactions. People understand that a dollar has value, but yet not everyone understands what cryptocurrencies are and/or how they work. Nevertheless, some big businesses have already started to accept Bitcoin as a form of payment, taking it into a more mainstream realm. It’s likely that cryptocurrency will become a common form of payment in the future, making it a logical long-term investment.
PRO: There’s no one who can tell you that you’re not allowed to have a cryptocurrency wallet, lowering the traditional barriers to entry in the banking world. While this may seem insignificant, remember that until 1974, banks could legally deny women credit cards or cut their credit limit based solely on their gender. Ninety-seven percent of Pakistani women are “unbanked,” meaning they don’t have access to financial services like savings or checking accounts. Globally, 65% of men have a bank account, compared to 58% of women, according to the World Bank. Access to financial accounts is not an issue of the past. When women — and other traditionally underserved populations — know about and have access to technology that allows them to buy cryptocurrencies, the potential to become financially independent is so much greater. Additionally, people living in countries with an authoritarian government or lack of a (or corrupt) banking system, citizens can still hold onto valuable assets independent of those institutions. With the necessary technology, the barriers to entry are minimal. There’s no minimum deposit and, as mentioned, no one can limit or deny your investment. You’re also able to contribute to your investment and withdraw money from your wallet however you please.
PRO: Regarding the above, cryptocurrency is a vision as well as a currency. The decentralized nature of cryptocurrencies makes it accessible worldwide. One could argue it’s a movement that brings people together across borders and allows people who may never have had access to financial independence to gain autonomy. In this way, it can be an investment you feel good about in more ways than one.
Laura Porter is a digital media consultant based in Washington, D.C.