The cryptocurrency craze is only getting bigger by the day. More people are turning to cryptocurrencies, including Bitcoin and Ethereum, as investment instruments to add to their portfolios. The debate around whether cryptocurrencies are sound investment opportunities isn’t going to die down anytime soon either.
The big question remains: is investing in cryptocurrencies worth doing? This is a question you need to answer yourself. To help you answer it, however, we are going to look at some of the most important things to know about cryptocurrency.
The risk-return trade-off principle we normally use to assess other investment opportunities applies to cryptocurrencies too. There is a lot of money to be made in crypto, but the risk is equally high. You can earn more than 500% in profit investing in the right cryptocurrency at the right time. Naturally, you can lose just as much – even all your investment – and just as quickly.
There is no way to accurately predict the cryptocurrency market at the moment. Unlike the forex or stock markets, where you can count on technical data and analysis to read the market trends, the cryptocurrency market is based mostly on sentiment and the market itself.
There are updates and news from the cryptocurrency world that affects the way the market moves. When South Korea issued a warning about Bitcoin and other cryptocurrencies, for example, Bitcoin price dropped by a whopping 20%. It is this kind of volatility that leads to investors treating cryptocurrencies as speculative instruments rather than a measurable investment.
Getting into Mining
Aside from trading cryptocurrencies on the market, another way to invest in the digital currencies is through mining. Mining is turning into a serious business for many, especially with new currencies being introduced to the market. While Bitcoin mining may not be as profitable as it used to, there is a lot of money to be made in Ripple, 0x, and NEO.
The principle behind cryptocurrency mining is very simple. Since Blockchain, the foundation of cryptocurrencies, is based on mathematical calculations, allocating computer resources towards doing these mathematical calculations (i.e. for processing transactions, keeping ledgers, etc.) earns you a certain amount of cryptocurrency in return.
You can invest in hardware designed for mining. Starting a new mining operation costs anywhere from $200 to more than $5,000, depending on the scale of the operation and other factors. Some miners have started to use web-based mining scripts to mine different coins. Trinity Newspaper recently reported on a shady mining operation that embeds a mining script into YouTube ads.
Adding Cryptocurrency to Your Portfolio
There is no doubt that cryptocurrency – and the blockchain technology in finance – is the future. As long-term investments, cryptocurrencies are also very attractive, considering the overall trend is still bullish. You can expect to see prices for popular coins soar by more than 100% in less than a year. That’s the kind return that you cannot get from other investment instruments.
Entering the cryptocurrency market without understanding the risks or the market itself, however, is not recommended. Be sure to take the time to learn about the cryptocurrencies you are interested in before investing any money.