July 2, 2022
  • July 2, 2022

Should you invest in cryptocurrency in 2021?

By on April 25, 2021 0

Cryptocurrency is the hottest new trend in the investment world. Although digital currencies have been around for over a decade, their popularity has exploded in recent months.

Bitcoin (CRYPTO: BTC) set records this year, peaking at around $ 63,000 in mid-April. Other cryptocurrencies like Dogecoin (CRYPTO: DOGE) and Ether (CRYPTO: ETH) have also grown in popularity as investors scramble to jump on the cryptocurrency bandwagon.

It is possible to make a lot of money by investing in cryptocurrencies, but it is also possible to lose a lot of money. Crypto is a risky investment and not for everyone. but is it good for you?

Image source: Getty Images.

Considering the earning potential

If digital currencies become mainstream, they have the potential to change society as we know it. Supporters of the cryptocurrency believe that it will continue to be more widely accepted by traders, increasing its value.

Venmo recently announced that it will start accepting cryptocurrency as a payment method, and its parent company, PayPal funds, also accepts crypto. In addition, companies such as You’re here and Square have made significant investments in Bitcoin, further legitimizing cryptocurrencies.

With more and more large companies getting into cryptocurrency, investing now might be a smart way to get into the ground level, so to speak.

By investing now, you could potentially make a lot of money as cryptocurrencies become more widely accepted. For example, five years ago, in April 2016, Bitcoin cost just over $ 400 for a coin. As of this writing, Bitcoin is worth over $ 54,000 per coin. If the price of Bitcoin continues to soar, investing now could put you on the path to getting rich.

That’s a big ‘if’ though, and investing in cryptocurrencies comes with a lot of risks as well.

Weigh the big risks

The riskiest aspect of cryptocurrencies is the uncertainty around them. We are currently in uncharted territory and no one knows whether cryptocurrency will eventually become mainstream or not.

Currently, most businesses in the United States do not accept cryptocurrency as a method of payment. In fact, only around 2,300 U.S. companies currently accept Bitcoin as a payment method, according to a study by Fundera. Considering that there are over 30 million businesses in the United States alone, this is a very small percentage accepting cryptocurrency.

No matter how popular cryptocurrencies are among investors, they cannot be successful in the long run if they are not widely accepted by traders.

Cryptocurrencies can also be incredibly volatile, which adds to their risk. Bitcoin, for example, has lost over 80% of its value in the past, and it has seen several big drops in recent months.

Bitcoin price chart

Volatility isn’t always a bad thing, but it can be hard to digest as an investor. If you are the risk averse type, investing in cryptocurrency right now could lead to many sleepless nights.

There are also risks associated with owning cryptocurrency itself. Buying cryptocurrency directly involves buying coins through a crypto exchange – not a traditional exchange. You’ll also need a digital wallet to store your coins, which can be a security risk if you’re not careful. Wallets can be hacked and if you lose your password you have no way to access your investments.

Is Cryptocurrency Right For You?

Whether or not cryptocurrency is a smart investment for you will depend on your risk tolerance and your investing style.

Think about how you would react if your crypto investments were to drop 20% overnight. What if they were down 50%? And 80%? If you know you are losing sleep or panicking your investments in any of these scenarios, cryptocurrencies may not be the best fit for your investing style.

Bitcoin symbol on top of a stack of gold coins

Image source: Getty Images.

On the other hand, if you have money to spend and are willing to take more risks, adding cryptocurrency to your wallet may not be a bad decision. Just make sure you only invest what you can afford to lose, and check that the rest of your investment portfolio is well diversified. That way, if cryptocurrencies do end up crashing and burning, you have a lot of solid investments to fall back on.

Finally, if you choose to invest in cryptocurrency, choose your investment wisely. Bitcoin is by far the most popular cryptocurrency, but it’s not the only option. So, before you invest, make sure you have done your homework to decide which digital currency is right for you.

Cryptocurrency is rapidly gaining popularity among investors, but that doesn’t necessarily mean it’s the right investment for you. If you are comfortable with risk and the rest of your portfolio is strong, you may be able to afford to gamble on crypto. Otherwise, it is wise to stay away for now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.