It is a question that I get asked time and time again. Should I invest in crypto?
This question has taken on a new dimension in 2022. The massive cryptocurrency market decline seen earlier in the year is still being felt. On top of that, the controversy surrounding the collapse of FTX, one of the biggest crypto exchanges, has raised new questions.
When people think of crypto they invariably think of scams, hacks, and the dodgy dark web. The truth is somewhat different. Let’s look at some points to consider should you decide to invest in cryptocurrencies.
Should I Invest in Crypto
Crypto, or digital assets to give them their correct phraseology, is a relatively broad term. At its core it simply describes the tokens generated by distributed ledger technology, otherwise known as a blockchain network. In short, anyone looking to utilise, develop or vote on the future governance of any distributed network must own the native cryptocurrency. Once this core tenet of crypto is understood, then the value of digital assets becomes clear.
Peer to Peer business model
In recent years we have seen terms such as Web3, blockchain, and distributed ledger technology come to the fore. What exactly do these terms mean? People are often heard saying the future is decentralised. Again, what exactly does this mean?
Decentralisation is essentially a peer-to-peer business model whose core principle is that no central point of control equals no central point of failure. Instead, nodes of a distributed network register their status and reach a consensus to confirm that an action has taken place. This is then recorded in a series of immutable data blocks, hence the term blockchain. Such a model increases transaction times, security, and transparency while helping to keep costs low.
As you might imagine, such an impactful and wide-reaching technology has caught the attention of some of the largest players on the global stage. As blockchain technology continues to gain legitimacy, the amount of capital invested is rising concurrently. To date, the total global cap of the entire crypto market is $900 billion. This sounds like, and indeed is, a very large number. However, when compared to other more established markets like global IT ($9.3 trillion) and gold ($11 trillion), it becomes clear that crypto is still in its infancy.
While some of the biggest names in the business world, Tesla, for example, may already be invested in crypto, many still view it as a risk-on asset. This is mainly due to the lack of regulation surrounding the market. It is generally agreed that once clear regulations are passed which define the investment status of digital assets, this will attract institutional investment, which will take the market to the next level. So with this information, the question remains, should I invest in crypto?
The two most well-known cryptocurrencies are Bitcoin and Ethereum. It is safe to say this is where the majority of people new to crypto choose to invest. While both of these projects have grand ambitions, we are still some way from wide-scale use and adoption. That being said, either coin would be considered one of the safer digital assets to invest in today.
When choosing to invest in crypto, I have found it is best to choose projects with a long-term vision for the future, a governing council if applicable, and a significant circulating supply and market cap. Projects which tick these boxes are far more likely to still be around in the next ten years. It is important to conduct your own research and be comfortable before parting with your cash.
Any investor new to crypto must understand the fundamentals concerning storage and safety. The crypto world is rife with stories of scams and hacks. Unfortunately, a lot of these stem from poor security management. I’m not sure what is worse, being hacked by a scammer or losing your private keys and locking yourself out of your own funds. Whatever your opinion, it is vital that you understand and teach yourself the basics of storing your crypto as well as the vulnerabilities when transferring or using your coins.
Digital Gold?
As the world continues to evolve into a post covid reality, the need for a fairer and more efficient commercial infrastructure has never been greater. Blockchain technology has a real opportunity to make a difference in everyday lives. The rise in automated bots on social media highlights the need for identification verification, while global supply chains are increasingly keen to prove the provenance of goods from producer to retailer. Both of these scenarios are good examples of where distributed ledger technology is beginning to make a real difference.
The concepts behind cryptocurrency are having a far-reaching impact. Its transformative technology is changing the very nature of money before our very eyes. Bitcoin evangelists like to highlight the fact that it is programmable or ‘sound money’ with a finite cap on its production. This is at distinct odds with the current debt-based financial system, which is creaking under its own weight. Whether this new money will take over the current status quo is a debate for another day. However, the rise of concepts like the Central Bank Digital Currency (CBDC) certainly shows that the future of money is digital.
There are many people who view Bitcoin and others as a digital alternative to gold and are choosing to store their wealth in cryptocurrency rather than traditional assets such as property, land, or, indeed, gold. Regardless of adoption rates, the integral software code which dictates the production and distribution of popular coins like Bitcoin mean that crypto is increasingly seen as a viable alternative to traditional forms of investment due to their capped supply levels.
The rising trend to include Bitcoin on the balance sheets of Tesla, PayPal, and Facebook shows that many large-scale investors view Bitcoin and other large-cap digital assets with long-term vision. No one can predict the future, although we can hedge our bets if we conduct our own research and choose carefully.
So, Should I Invest in Crypto?
Investing in crypto in the latter portion of 2022 still has the opportunity to provide a significant return on your original investment over the next five to ten years. However, given the current climate, I strongly recommend you conduct your own due diligence before parting with any money into what is still classed as a risky investment.
