Pros and Cons of Investing in Cryptocurrency

There are a number of pros and cons to consider in terms of investing in cryptocurrency. Some of the important pros and cons of cryptocurrency investing can be summarized as:

CON: Even if cryptocurrency is a good long term bet, we don’t know if Bitcoin (or any of the top coins) will be the one that sticks around. This is even more true for the countless less popular coins with smaller market caps. Thus, there is risk in betting on a given coin (even if cryptocurrency is here to stay and the best prices are ahead).

PRO: Even if cryptocurrency is in a bubble, the trend could very well be toward cryptocurrency being an important form of exchange in the future. If the current price is lower than the highest price we will ever see. That makes it a good long term bet. Meanwhile, for day traders, cryptocurrency is a very risky (but potentially rewarding bet).

CON: Those with low-risk tolerance have an added risk, that is getting weak knees and pulling out at a loss while the market is correcting or slumping. If you bought Microsoft at the height of the .com bubble, it seemed like the end of the world… unless you waited 17 years. 17 years later you realized your profit (and a nice profit at that). Microsoft was never a bad bet, it only looked like one after the bubble pop to those who bought at the height of the bubble. In other words, if Bitcoin is like the Microsoft of cryptocurrency, then an investor needs to be prepared to take a loss or sit on a loss for a while if the market goes down (if this is a major bubble). That all takes a certain type of mentality and expendable funds. In other words, there are psychological factors to consider alongside economic ones.

CON: Regulators of major countries like the U.S., Russia, and China can have big impacts on cryptocurrency (they likely can’t crush it, but they can make life difficult for investors). The U.S. shutting down the Silk Road caused a crash in 2013 (popping a bubble that didn’t recover until 2017). In 2017 China began talking about banning ICOs (crowdfunding for new coins) and gave signals of disapproval (bringing the price of a Bitcoin from $5k to $4k in a matter of hours). Currently cryptocurrency trading is legal in the U.S., Russia, and China (although that could change), and the U.S. and Russia have been fairly friendly toward cryptocurrency… but keep in mind governments can influence the price (even when all other signals are good).

PRO: Since the market is volatile, if you time your buys and sells right, you can buy high low and sell high often. That is, there is a ton of money to be made.