According to experts in the established financial fields, until a few months ago all forms of crypto investment were considered a serious risk. It was an unknown quantity. It was a bursting bubble. And then, suddenly, it wasn’t. There are still those who doubt the longevity of the crypto phenomenon, particularly as Bitcoin and Ethereum continue to gather momentum at a considerable pace, but just as in every other field of finance, there are low risk and high gain investment options available. It’s just a case of knowing how to identify the potential risks, and taking steps to limit them — as you would when placing your money in any other form of investment.
In this blog, we’re going to be looking at the various complexities of crypto investment, and the best ways to reduce your exposure to the potential risks.
Although cryptocurrency has been around since 2009, apart from a few lucky people with the gift of foresight, it has only very recently started attracting serious investors. A currency, an investment, and a technology all in one, cryptocurrency holds a three-fold appeal, and it’s this — as well as the potential for massive gains associated with the early investment in a new venture — that has driven the recent crypto boom. Forbes recently described the rapid ascent of cryptocurrency as ‘frightening’ because a) it’s new and therefore unknown, and b) because it has the potential to change the entire face of how money ‘works’.
As anyone who hasn’t been living in a Wi-Fi-free cave for the last several years will know, cryptocurrency began with Bitcoin. But, rather than being devised as a potential money-spinner, the original purpose of the virtual coinage was to ease and expedite online transactions between IT workers — so paying for a designer or developer to reconstruct a website, or put a new piece of code into a machine, without the delays that can be experienced when working with established banking methods.
In 2011 other people started getting on the act, using Bitcoin’s open source code to develop their own cryptocurrencies for their own uses, and from there more and more people saw the potential crypto assets offered in the worlds of both tech and business. It’s this that has led to the recent surge in interest and the growing potential for investment.
At the time of writing, Bitcoin has reached an unprecedented peak, with one coin equalling £6,242.80 (US£8,279.92). In the last year, Ethereum and Zcash have also surged by more than 3,000 percent and 1,000 percent respectively, putting them at a value in the region of £300 per unit. In the same period, Litecoin has gained 700 percent in value, and the likes of Ripple, Dash and Monero are experiencing their own surges as more and more people look to be a part of the next big thing. While all of this is very exciting, the sceptics are right, in that it doesn’t come without risks.
Investors wildly throwing their cash at cryptocurrencies are going to get burnt. But then, the same behaviour wouldn’t leave them unscathed when dealing in fiat investments. It’s all about taking sensible precautions.
Perhaps the most obvious thing that you can do to protect your assets while putting them to work is to diversify; don’t put all of your crypto eggs into a single digital basket. If trading cryptocurrency isn’t your full-time job, however, and you don’t have the time to ceaselessly research numerous assets, there are some easier options for the part-time investor to take, while still limiting the risk of loss.
After a slightly sluggish start, which in the long-term will probably appear nothing more than the blink of an accountant’s eye, cryptocurrencies have suddenly found the accelerator. More and more are being created — more than 1,000 at the last count, but no one really knows the exact figure — and more and more people are getting on board. No longer a blip, crypto is now viewed as a notable disruptor, to the point that Russia has considered banning Bitcoins, and China’s central bank has banned ICOs, while Switzerland has become known as ‘Crypto Valley’, thanks to the way in which the country has embraced this new financial ecosystem.
Now that crypto assets are becoming more widely accepted, and payment cards are allowing cryptocurrency holders to use their funds for real-world purchases, not just online transactions, we’re reaching a state where there is a blurring of the lines. Digital currencies could soon become interchangeable with their physical, fiat forebears. Some are positing that we’re ultimately moving towards a cashless society, and if/when that becomes the case, today’s cryptocurrencies will provide the base from which all currencies will be formed.
Investing in cryptocurrencies and other crypto assets is not risk-free. But what investment is? If you want your capital to grow you have to put your assets out to work.