(PDF) Cryptocurrency: A New Investment Opportunity?

Added on - 05 Apr 2021

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Invest in Bitcoin - Is it Safe?This article would be helpful if you are uncertain if digital currencies such as bitcoin andethereum are a decent asset category to invest in.Bitcoin and other cryptocurrencies, praised by proponents as a market-disrupting liberationand demonised by opponents as a risky, unpredictable invention, are never far from the press.The price of bitcoin reached $20,000 for the first time on December 16, 2020. Its worthexploded past $34,000 on January 3, 2021, indicating a benefit of nearly $5,000 in the firstfew days of the year. The cryptocurrency's valuation then briefly reached a record peak of$48,000 on February 9, 2021, after electric-car manufacturer Tesla announced that it hadpurchased $1.5 billion in the cryptocurrency and promised to begin accepting it as paymentfor automobiles.The coin rallied to a new record high on Sunday, February 21, peaking at $58,354, beforeplummeting two days later to $44,845.72, a loss of 18.4% for the day and a drop of nearly aquarter from Sunday. The coin had swung back up to $48,739. At the time of writing [March2], it had swung back up to $48,739. 20Experts assume the recent price spikes are the result of an influx of capital from retail andprivate investors, caused by the coronavirus pandemic.The ecosystem of bitcoin and other cryptocurrency is veiled in darkness. The assumedindividual or persons who invented bitcoin, built and implemented bitcoin's initialdeployment programme, and devised the first blockchain database are known as SatoshiNakamoto.What exactly is bitcoin, and how does it function?After all, converting money from one online bank account to another is just what the idea ofdigital currencies like bitcoin that people send online is all for. To do that, cryptocurrenciesuse blockchain technology, which is a means of sending data across the internet. However,unlike conventional currencies such as the US dollar and the British pound, cryptocurrenciesare "decentralised," ensuring they are not governed by a financial body such as thegovernment or central banks.This has the following advantages: Cryptocurrencies are universal, which means that theirworth is the same in all nations. This feature makes it much easier to send money around theworld without having to worry about exchange rates.Investing in something poses a chance of losing capital, but the greatest downside ofcryptocurrencies is their severe uncertainty. There have also been cases of people having towait for their money due to technological difficulties.What are the three most common cryptocurrencies?Bitcoin, the most well-known and first global cryptocurrency, emerged in 2009 and continuesto dominate the market. As of March 2, its market capitalisation, or overall value, was $910billion. With respective market values of $179 billion and $39 billion as of March 2,Ethereum and Cardano are listed second and seventh, respectively.Since 2009, a slew of new cryptocurrencies known as altcoins have appeared on the scene.
What has been the output of the bitcoin price?Bitcoin's price has been steadily rising since September 2020, fueled by investor demand aswell as reports that PayPal would encourage US customers to buy and sell the cryptocurrencyinside its app next year, and Tesla has stated that it will begin accepting bitcoin as paymentfor its automobiles. As of March 2, one bitcoin is worth $48,739.20.The blockchain has already made gradual progress, such as at the end of 2017 before crashingin 2018. (see graph below, which was produced in January 2020).The cryptocurrency market's most distinguishing feature is its extreme uncertainty. Totranslate bitcoin values into investment benefit and loss terms, you will be sitting on a 300percent profit by the end of 2020 if you had invested at the start of the year. If you had savedat the beginning of the year and sold on New Year's Eve, you would have lost 73 percent ofyour investment as the bitcoin price plummeted.You're not alone if you're concerned about the market dynamics that allow these rates tofluctuate so drastically. Although the valuation of these currencies is usually related to supplyand demand as well as the number of rivals, it is also difficult to pinpoint the exact factorsthat affect their unpredictable conduct. This raises the risk of investing in digital currencieseven higher!What are some of the newest cryptocurrencies to keep an eye on?Litecoin, bitcoin cash, and EOS are examples of new, smaller cryptocurrencies. While itmight be enticing to invest in cryptocurrency beginners, you should proceed with caution. Farmore risky than bitcoin are smaller altcoins. They are, in reality, purely speculativeinvestments. If you're tempted, experts suggest spending just a limited portion of yourmoney: 5% or less.How dangerous is it to invest in cryptocurrencies?Consider if you can purchase a house in Rapid City, South Dakota before investing incryptocurrency. This city in the United States has a population of just over 75,000 residentsand is said to have some of the most extreme weather on the planet, with snow blizzards andsummery thunderstorms happening without warning before it calms down and temperaturesincrease drastically the next day. Rapid City's weather is a fitting metaphor for bitcoin's andother cryptocurrency's behaviour: it can be completely insane.If you should plan to invest, be mindful that you can risk any or all of your funds.Cryptocurrency is not the same as traditional trading.Cryptocurrencies were dubbed a "Wild West market" by lawmakers in 2018. They are stillunregulated by the UK watchdog, which adds to the risk. From January 6, 2021, the FinancialConduct Authority will bar financial institutions from selling complex instruments thatspeculate on cryptocurrency movements to retail customers: contracts for variance, spreadbetoptions, futures, and exchange traded notes that depend on digital currencies will beforbidden.Andrew Bailey, the governor of the Bank of England, recently expressed his concern aboutpeople using bitcoin to make payments. He has previously warned cryptocurrency investorsthat they should plan to "lose all of their assets."
Is it smart to invest in bitcoin?Bitcoin is considered to be at the (extremely) risky end of the investing continuum.Cryptocurrency rates are volatile; some may go bankrupt, some may be scams, and others canrise in value and make a profit for investors.“Cryptocurrencies could stay niche, become commonplace, disappear without trace, orsomething in between,” says Danny Cox of financial services firm Hargreaves Lansdown.“Any investment should be seen as very high risk.”Mark Hipperson, CEO of cryptocurrency platform Ziglu, makes the argument for digitalcurrencies being popular. “With more and more major companies embracing crypto, such asTesla and Starbucks, [Starbucks is exploring a way for users of its smartphone app to pay forcoffee and food with the cryptocurrency Bakkt Cash, for example], there now seems to be nochance that crypto will be allowed in as many ways as conventional currencies one daysoon.”Do your homework before investing, and don't put all your eggs in one basket for onebusiness or one cryptocurrency: spread your funds around to spread the risk, and just spendwhat you can expect to lose.Is there a way to invest in crypto that is less risky?According to Gavin Brown, associate professor of financial technology at the University ofLiverpool, "stablecoins" may be a less expensive way to invest in cryptocurrencies.“Stablecoins are still developing and have the ability to overcome the problems of cryptoassetinstability and reputation. Stablecoins, unlike cryptos, are backed by real money, much likenormal currencies,” he adds.Two of them are DAI and TUSD, all of which are backed by the US dollar (one coin is worth$1). DAI is hosted on the Maker (MKR) website, and he claims that crypto systems are betterto invest in than traditional currencies. “Risk is therefore minimal, but gains are either low tonon-existent.”Brown mentions tether, the most common stablecoin, which is backed by a dollar per coin.“During the [first] lockdown of the pandemic, Tether not only retained its status as thehighest stablecoin, but it also more than increased its market cap – from $4.6 billion to $9.2billion [it is now worth $22 billion as of January 4].” It indicates the uncertainty hasdecreased.” He goes on to say that new buyers shouldn't expect tether to be the next big thing.“It would never be worth more than a dollar in principle. However, having tether in anycomplex portfolio could be an attractive alternative – it could have a bit of flexibility if[other] stuff start to suffer.”Long-term investments in businesses involved with cryptocurrency, according to Brown,could also be less costly. Shares in Facebook, which is preparing to introduce a currencynamed Diem (formerly Libra), JPMorgan, which has a digital JPM coin that is pegged to theUS dollar, and Wells Fargo, which is creating a US dollar-linked stablecoin, are only a fewexamples.Few funds and investment trusts already have cryptocurrency exposure, which is a lessexpensive form of buying than trading the currencies directly.
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