The idea of investing in cryptocurrency is becoming increasingly popular again after a relatively quiet few years in the crypto space.
Whether or not cryptocurrency is a good investment is a highly debatable topic.
Cryptocurrency in general is a pretty divisive topic and so it’s hard sometimes to remove people’s bias from the discussion.
To be upfront from the start, I have my own biases and am a fan of crypto. That doesn’t mean I don’t try and be objective about it. I’m just not a spectator sitting on the fence.
What is a cryptocurrency?
This sounds like it should be an easy question to answer, but it isn’t.
The reason it’s more complicated than it sounds is because many cryptocurrencies are very different in their structure and how they operate. At the core though, a cryptocurrency is a digital token (sometimes labelled as “digital money”).
I will write some more about the fundamentals of cryptocurrency and the utilities of different coins another time.
This post is focused on investing in cryptocurrency, so I’m going to try and just stick to that without doing a complete deep dive into the crypto space. Doing so could result in this article going on for days, but I promise to go into more detail in future.
Why do people care about cryptocurrency?
I was all aboard the crypto hype train in early 2017 and managed to get some skin in the game before things completely blew up. I wish I’d been more of an early adopter, but I’d just never really looked into it. I’d heard of Bitcoin but just thought it was some weird digital gimmick and didn’t realise the potential of it as an asset.
The cryptocurrency market grew exponentially towards the end of 2017 and then famously blew up and popped at the beginning of 2018. This bubble-bursting was the beginning of a long bear market for cryptocurrencies. Some people called it the “crypto-winter” and it was a pretty shitty time to be an investor in cryptocurrency.
Why did cryptocurrencies lose so much value?
It’s impossible to tell for sure what led to such a long bear market for cryptocurrencies.
One definite factor was the hype and retail investment. Back in 2017, Bitcoin had performed so well, everyone and their Nan were jumping onboard the bandwagon. This was largely driven by greed and by people who did’t understand cryptocurrency but just saw the price shooting up and viewed it as easy money.
When you have millions of people acting like that, it creates a bubble.
The market crashed and then all those people who jumped in to make a quick buck ended up seeing their portfolio value drop. So they sold and jumped off the crypto train saying “Bitcoin is shit”.
Really though, shaking off all these fair-weather fans was great for Bitcoin.
Bitcoin or cryptocurrency?
You might have noticed that it seems as though I’m using the words “Bitcoin” and “cryptocurrency” interchangeably. Let’s be clear, Bitcoin is a cryptocurrency.
The reason I’m mentioning Bitcoin frequently is because it is the original gangster of the crypto market and is where the majority of money is invested. For this reason, what happens to Bitcoin pretty much dictates what happens within the rest of the cryptocurrency markets.
When Bitcoin is performing well, it usually drags the rest of the market up with it because it has the largest market share.
Is cryptocurrency a good investment?
Again, this is a difficult question because it depends on which cryptocurrency you’re talking about.
Some cryptos are pretty crap and are the equivalent of junk penny stocks.
Overall though, some major cryptocurrencies like Bitcoin and Ethereum have been some of the best performing assets of recent times (even with the long crypto winter).
More and more institutional investors are investing at least a portion of their portfolio into cryptocurrencies like Bitcoin and I think this is wise.
There’s still a lot of uncertainty and volatility in the crypto space so it’s a high-risk investment and I don’t think its wise to bet the whole house on it. It’s high-growth potential does make it an appealing investment and can add an extra bit of diversification to an investment portfolio.
Similar to investing in gold, many people are viewing investing in Bitcoin as a good hedge against inflation because it is a deflationary asset (the supply reduces over time and more can’t be printed).
What to buy and where to buy it?
I highly recommend doing your own research and I will write some more material around cryptocurrency investments.
If you’re just getting started and have decided investing in cryptocurrency for you, purchasing some Bitcoin and Ethereum is a good place to begin.
Bitcoin and Ethereum are the two most popular cryptocurrencies and hold the largest share of the market. They’re the equivalent of Apple and Microsoft in the crypto space. The big dogs.
Although they charge annoying fees, Coinbase is a good place to invest in cryptocurrency. They are one of the first cryptocurrency exchanges, they’re very secure, and their app and interface is very user-friendly.
More on cryptocurrency
I hope this has been useful, and I’ll work on producing some more crypto-related material!
If you sign up to Coinbase using the links provided, both you and I will receive a little bit of bonus Bitcoin!