It seems like everybody’s talking about cryptocurrency! Everyday you hear about someone investing in crypto and becoming a millionaire overnight or losing it all in the blink of an eye. That’s due to the inherently risky nature of investing in cryptocurrency, but with great risk comes great reward! Let’s take a look at the potential downsides of investing in cryptocurrency, the different digital currencies currently available, and some alternative investment ideas if crypto ends up being not for you!
Remember, if you want to learn about investing in cryptocurrency, or any other types of investments, you should always rely on the advice of a financial advisor. If you don’t have access to your own expert, choose a trusted online advisory service such as the Motley Fool. Every year, the Motley Fool helps millions of people obtain financial freedom through smart investments. Through the Motley Fool discount featured here, you can get started at a reduced price!
Is Investing in Cryptocurrency Risky?
In short: yes. The risk of investing in cryptocurrencies comes in many forms. Let’s take a look at a few of the most common risks:
- Security risk: Since cryptocurrency is an online form of digital currency, it is especially vulnerable to attacks by hackers.
- Volatility Risk: Cryptocurrencies are subject to a lot of volatility. This is especially risky for short-term investors.
- Liquidity risk: For now, cryptocurrencies suffer from a liquidity risk (or the risk of not being able to sell your investment quickly at a reasonable price). As the market begins to accept crypto more willingly, this is subject to change.
- Tax risk: The authorities have started to crackdown on the underreporting of cryptocurrency gains recently. Make sure you’re well versed on the laws regarding digital currencies in your own country.
Learning about the potential risks associated with an investment is your first step towards managing those risks.
Different Types of Cryptocurrencies
Interested in investing in digital currencies? Here are 4 of the most popular types:
- Bitcoin: This is easily the most popular and recognizable of all the cryptocurrencies. Unlike money, Bitcoin is capped at 21 million pieces available. Bitcoin is a popular choice for people new to investing in digital currencies.
- Ethereum: Ethereum is a decentralized software platform that enables smart contracts. The goal of this platform is to create a sort of decentralized financial product that anyone in the world can access. This potential to cut out middlemen bankers is an exciting financial prospect that’s appealing to many investors.
- Dogecoin: Created as an alternative take on the “blockchain” craze, Dogecoin has grown more than 4000% in recent months. The downside is that unlike Bitcoin, there is no cap on how much Dogecoin can be mined.
- Binance Coin: One of the advantages of this currency is that just like Bitcoin, there are only a strict number of coins in circulation. That limit is rather large: it’s 2 million and that’s why Binance has risen to become one of the most popular digital currencies in the world.
Alternatives Investment Ideas
Not interested in investing in Bitcoin or another digital currency? Don’t worry, there are many other forms of alternative investments available for every would-be investor:
- Gold and gold funds: This doesn’t mean running out and buying a lot of gold bars or jewelry. Investing in gold is now done through gold Exchange Traded Funds (ETFs), gold funds and sovereign bonds.
- Real estate: If you don’t have the capital to invest in traditional real estate, check out crowdfunding sources like Fundrise. There you can start investing in diversified real estate with as low as $500.
- High-interest savings account: For risk-averse investors, you can always just keep your money in a high-interest savings account. If you choose this option, opt for an online bank. They usually offer higher interest rates since they save money on overhead fees.