Is Cryptocurrency Safe to Invest In? Separating the Truth from the Myths

We have all heard the stories of speculative investors making a fortune by investing in cryptocurrency. For the same reason, however, many individuals have seen their investment tank, losing significant amounts of money.

Investing in crypto can be extremely profitable, but it is also incredibly risky. This article debunks four cryptocurrency myths and explores the pros and cons of investing in the digital currency.

Myth #1: Crypto is not “real”

Cryptocurrency is an intangible asset. Instead of being stored in your wallet or purse, they are stored on computers. However, this does not make them imaginary.

With crypto increasingly being adopted in mainstream banking today, more and more retailers, from pizza shops to hotels, accept payment in crypto. Ethereum supports international “smart contracts,” which facilitate business agreements between parties in different countries, ensuring that ownership of assets is only transferred once prescribed conditions have been fulfilled.

Myth #2: Bitcoin is a bubble

Characterized by unsustainable increases in market value, a bubble is an economic cycle that is prone to bursting when investors realize prices far above an asset’s fundamental value.

Some investors regard Bitcoin as a speculative investment, balancing the risk of losing money against the potential to realize significant gains. Bitcoin has been compared with an early incarnation of the speculative bubble, “Tulip Mania,” which occurred in the Netherlands in the 17th century. In 1637 Dutch speculators caused the price of some tulip varieties to swell by more than 26 times. The bubble lasted for six months before crashing, and the market never recovered.

In reality, for more than a decade now, Bitcoin has weathered numerous price cycles, recovering from each one to achieve a new high. Boom and bust cycles are to be expected with any new technology, as was demonstrated at the end of the dot.com era in the 1990s, when Amazon stock sustained a staggering 95 percent decrease in value. However, it should also be remembered that Amazon not only recovered but subsequently grew to become one of the most valuable businesses of all time.

Major investors in cryptocurrency contend that value oscillations are typical for any young market, with both the frequency and tenacity of surges and slumps decreasing over time as the market settles into relative stability. Only time will tell, but with almost 1,500 different cryptocurrencies at the last count, prices can fluctuate wildly in this ever-growing market, particularly with new, unproven entities.

Myth 3: Cryptocurrencies are 100 percent secure

While it is true to say that Bitcoin is more secure than many financial systems, as it relies on a blockchain secured by cryptography to validate transactions, users are “pseudonymous” rather than “anonymous.”

Since all ledgers are public, users are vulnerable to being tracked down and targeted by cybercriminals. Bitcoins are stored on a secure system, but their owners could be vulnerable to hacking attempts such as malware, phishing attacks, fake websites, and man-in-the-middle attacks.

Like all other digital activities, crypto is increasingly being targeted by gangs of cybercriminals. According to Federal Trade Commission data, the increase in crypto crimes culminated in a median loss of $1,900 from October 2020 to March 2021, with scammers using tactics like sending unsolicited offers to help investors make more money or circulating initial coin offerings for fake cryptocurrencies.

While many cases arose from investors being duped rather than failings in cryptocurrency systems, it is important to remember that crypto held in a digital wallet is not FDIC-insured like bank account savings, so it is vital to invest only in platforms with robust security measures. Many experts recommend “cold storage” through an offline device, although this also creates scope for investors to lose access to their investment if they forget their password.

Myth 4: Cryptocurrency is a get-rich-quick scheme

Bitcoin, the oldest cryptocurrency on the market, remains a volatile investment vulnerable to huge fluctuations, each of which creates winners and losers. In 2021 Bitcoin soared in value at $60,000 per coin, bottoming out at $30,000 in the same year.

Stories abound of fledgling investors buying obscure cryptocurrencies and making vast sums in a matter of weeks. Although this does happen on occasion, in reality, these instances are very rare. While investors may be attracted to market newcomers by the potential of achieving high yields, in truth, smaller coins could represent an even riskier investment.

Rather than just trying to make a quick buck, prudent investors take a long-term approach to crypto, thinking in years and decades rather than weeks or months. Instead of gambling their rent or monthly mortgage payment, savvy investors invest only funds they can afford to lose. By taking a long-term approach, investors are better equipped to weather periodic falls in value. For short-term investors with limited funds, value dips could be catastrophic, causing them to incur significant losses through panic selling.

Originally published at http://carltonjamesguyana.com on April 13, 2022.

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Carlton James is a Director of GBTI and a Consultant Specialist in corporate communications for development

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Carlton James

Carlton James

Carlton James is a Director of GBTI and a Consultant Specialist in corporate communications for development

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