Cryptocurrencies are a hot topic these days. People all over the world are making thousands, if not millions, of dollars investing in these digital tokens. The potential returns, however, come with great risk and volatility. Before investing in cryptocurrencies you should definitely take the time to do your own research.
Below I've listed four things, both good and bad, about investing in these digital assets.
- Good: Potential returns can be massive.
Everyday you hear crazy stories about individuals making money with cryptocurrency. To put it in perspective, if you invested $1,000 in Bitcoin back in 2013 it would be worth over $400,000 today. A few alternative coins (altcoins) that have recently jumped into the top 10 tokens for market cap have seen increases of 1000 percent in the last few months.
- Bad: Inexperienced teams.
Every cryptocurrency is essentially a startup building a product to solve a certain problem.
Cryptocurrencies are fairly new. There are a lot of teams with little experience in the space and not very many individuals with extensive knowledge and or experience. Just like a startup, if a team isn't properly managed the whole project can fall apart. Most projects will include information about the team. A quick LinkedIn search can show a lot in regards to their experience.
- Good: Liquidity
When you invest in an asset like a startup, your money can be locked up for years. You're stuck, unless someone buys your equity or the company is acquired or goes public. No so with when investing in cryptocurrencies, where your investment is fairly liquid.
With cryptocurrencies you can buy and sell on the fly. Markets run 24 hours a day and seven days a week. Buys and sells are generally instant so you can react quickly when there is market fluctuation.
- Bad: Technical difficulties.
The hardest thing for people to grasp when it comes to investing in cryptocurrencies is the fact that it's all digital. You can equate nearly any other investment to something physical but you can't actually hold a Bitcoin in your hand.
Given that these assets are entirely digital you're often subject to technical difficulties. Markets and exchanges can get very slow when they are busy. Deposits and withdrawals are often disabled for certain tokens when the networks get congested. If you need to sell or move coins around at this time you're at the mercy of that exchange.