Investing in Cryptocurrencies
There is no doubt that cryptocurrencies have become very popular in recent years. The arrival of bitcoin changed our way of seeing money and the arrival of decentralized finance (Defi) changed the way we relate to it.
The advance is such that today you can buy different cryptocurrencies through an exchange in a simple way, keep them in an account and wait for their price to rise in the future to sell them and get a good return.
However, it is important to remember that every investment, no matter how safe it may be, involves risks and has its pros and cons.
For this reason, in today’s article, we will tell you what is involved in investing in cryptocurrencies and what advantages and disadvantages they present.
What is cryptocurrency investment?
Before going into its advantages and disadvantages, it is important to clarify some points if you are thinking of investing in cryptocurrencies for the first time.
Crypto assets are not characterized by generating passive income. That is, income that you can receive automatically, which is received for having done something previously, such as, for example, renting an apartment.
This is a type of investment where capital gains are sought, that is, buying a currency when its price is low and selling it when it rises in order to make a profit.
In other words, you invest waiting for its value to increase in the future in order to sell it at a higher price than the one you bought it for.
Now that you know what investing in this type of asset is all about, let’s take a look at its advantages and disadvantages.
Advantages of investing in crypto
Since the emergence of Bitcoin in 2009, cryptocurrencies have not stopped growing and many people have entered into this type of investment. This is because they have a number of advantages.
They are secure and transparent
One of the key reasons why cryptocurrencies are highly appreciated by users is due to the system behind them, and their digital structure, guaranteed by blockchain technology.
This technology works as a decentralized database that allows keeping track of all transactions that are made and are publicly available to all users.
The fact that the blockchain works in a decentralized manner means that there are different copies of it distributed around the world on different computers and that these are systematically updated at the same time.
For this reason, if any hacker tries to alter its database, one of these copies will not match and will be disaffected. For this reason, the information safeguarded with blockchain technology is considered unalterable.
They are decentralized
Decentralization not only means that the database is not located in a single place, it also implies that this type of asset cannot be controlled by a single entity, as is the case with fiat money, which is regulated by governmental organizations or banks.
This means that there is no need for the participation of an intermediary to carry out a transaction between two people, allowing a reduction in transaction costs.
Let’s imagine that we want to send money to a person who is in another Latin American country, this implies the intervention of intermediaries who charge an amount of money for their work and lengthen the transaction times.
Being directly between users, the transaction is instantaneous and the commission is practically null.
They are global assets
Cryptos are worth the same anywhere in the world because they are not regulated by banks or governmental organizations.
In addition to this, since their market is open 24 hours a day, unlike the stock market, people can profit from their investments at any time and make transactions with anyone in the world at any time.
Disadvantages of investing in crypto
Let’s see how the other side of the coin, what are the disadvantages of investing in this type of asset, and what risks are involved?
They are extremely volatile
The price of cryptos, such as bitcoin or ether, varies every minute. Just as it can reach record highs in one week, the following week it can devalue considerably.
Cryptocurrency markets are fundamentally based on speculation, making them vulnerable to price fluctuations. For this reason, stablecoins emerged. This type of currency tries to keep its price stable with a reference asset through fiat money backing.
The most popular stablecoins on the market are those that seek to be 1 to 1 with the US dollar, such as USDT or USDC, although there are also nuARS, a stablecoin that seeks to be one-to-one with the Argentine peso.