Cryptocurrencies have lost their status as niche investments over the past few years, as they are increasingly entering the world of mainstream finance. Exchange-traded funds have also become available, and new legislation is set to further enhance the ecosystem’s accessibility. Regulations are a must and will most likely drive engagement rates by attracting the prospective investors who had been worried about losing their capital up until that moment. However, if you’re looking through the latest crypto news today, you’ll notice that fluctuations remain the same and that the currencies are still volatile.
So, is crypto a good investment for your portfolio? Should you consider it as a long-term investment, or are there other holdings that would be better suited for your financial goals?
An overview
2024 was the year when the Securities and Exchange Commission approved the trading of the first spot Bitcoin and Ethereum exchange-traded funds. This motion marked the entry of cryptocurrencies into the broader world of financial markets, ensuring that digital assets can become an integral part of the trading portfolios of many more investors. Steady engagement rates are very important for the marketplace as they help make it more consolidated and mature, key features that also make the coins appear much more reliable in the eyes of the users.
Since the fourth quarter of last year, crypto values have been climbing steadily, with many coins reaching record levels never seen before. Although corrections still occurred, they were minor and didn’t impact the prices in the long run, with growth continuing. This has caused investors to become more likely to invest in cryptocurrencies. However, keeping risks in mind is very important as well, otherwise you won’t be able to come up with a good strategy that helps you accumulate capital instead of losing it.
Hedge against inflation
Since cryptocurrencies operate on a marketplace that is entirely decentralized, crypto coins have continued to be impacted by volatility to a much higher degree than traditional assets. However, since the marketplace operates independently from the centralized ones, many have gravitated towards them when things became tougher as a result of inflation or depreciation events. Bitcoin itself gained the nickname “digital gold”, with many likening it to the precious metal due to its scarcity and ability to retain its value over a long time.
Yet, analysts warn that whether crypto can act as a hedge against inflation remains a matter of speculation. The results you obtain if you choose this path will likely be just as unpredictable as the crypto market itself. While some feel like they could definitely trust digital coins and tokens with this endeavor, others think that holdings with a lower degree of risk would be much better suited in this regard.
Taxation
The taxation rules pertaining to cryptocurrencies continue to change as their status shifts as well. Depending on the category, cryptocurrencies are considered to be a part of taxation, which will be different. Moreover, each country’s current regulations differ, a feature that makes it very difficult to join all the markets under a single ecosystem. Having a joint framework will be necessary if the marketplace is to reach the mainstream and go global at the same time. Currently, discussions continue regarding the future of crypto, a conversation that naturally involves taxes as well. If you’re considering buying or trading digital assets, you will need to stay informed about these market shifts.
Right now, the IRS sees crypto transactions as taxable events, meaning that anytime you sell crypto or turn it into fiat, you are completing a taxable event. Paying for products and services with cryptocurrencies can, therefore, trigger a tax liability as well. The IRS also views crypto as property, meaning the assets fall under the same tax rules as other holdings in this category. If you hold the assets for a year at the most, your gains will have to deal with the short-term capital gains tax rate, the same that applies to wages. However, if you hold the tokens for over twelve months, you will have to pay the long-term capital gains tax rate.
The potential risks
Anytime you want to start trading a product, you need to be aware of the potential risks that you’re exposing yourself to. There are no holdings that are entirely safe; there’s a degree of uncertainty in every market, it is part of the trading process, and if you feel like you can’t handle the pressure at all, it is always better to be safe rather than sorry. Since volatility can be so strong, it also means that financial losses can be considerable, especially in the beginning when you’re not familiar with the market’s intricacies and the way things work.
Since cryptocurrencies don’t yet benefit from the advance of comprehensive and extensive regulations, you should not be surprised if any challenges come along the way. Last but certainly not least, cybercrime is one of the most serious concerns for users. Since wallets hold a significant amount of money and can be accessed online (if they are software-based), they are highly coveted targets for hackers. Extracting the coins can also be achieved through scams, where investors are tricked into revealing their passwords. Many are tricked with the promise of future earnings, such as by becoming part of a new and exclusive project.
In some cases, scammers also pretend to want to make friends with the victims or pursue them under the guise of a romantic relationship. If you’re an investor, it’s essential to keep your digital wallet credentials private, ensuring you remain as safe as possible.
In conclusion, whether cryptocurrencies are a good idea or not for your portfolio largely depends on your financial goals. If you believe that they could increase your earnings, they’re definitely a good idea, but if you’re not a fan of dealing with risk, it might be better to steer clear of them. According to Binance.com CMO Rachel Conlan, the crypto ecosystem is focused on building trust, awareness, and confidence in order to drive growth. If that sounds like something you’d like to be part of in the future, it is worth giving crypto a shot.
