4 Biggest Pros and Cons of Investing in New Digital Currencies

by Andrew McGuinness  //  sep. 04, 2018

Investing in cryptocurrencies has quite a few similarities and differences to traditional investing and like all investments, they’re a bit of a gamble. Initial Coin Offerings (ICOs) are being set up faster than you can keep up with for fintech startup to get capital funding, providing plenty of opportunities to invest. It’s hard to see through the nuances of trading 101 in the crypto space as there are a lot of pros and cons to consider whether one should get into it in the first place. Despite the risks of investing in cryptocurrencies, several large financial institutions are beginning to enter the fray.

One of the beauties of investing in crypto is that it’s not very difficult to start: whether you’re looking to invest a proper amount of capital or if you just got some space cash lying around that would serve you better by investing it, let’s go through trading 101 in cryptocurrencies.

Pros:

  • Potential for massive ROI

You’ve seen it on the internet and on the news, that if you had bought $1000 worth of bitcoin in 2013, you’d have $400,000 at today’s value. Other currencies other than bitcoin have done rather well too. Good examples of these are Spectrecoin and Stratis, whose coin values have risen 13,000 and 63,000 percent since their ICO.

  • Quick returns are viable

Everyone knows that cryptocurrencies are risky and there’s no denying that. Since the risk is high, the rewards should be too – and if timed well, those rewards can be cashed out quickly. A coin like Stratis that grew 63,000 percent in 6 months would mean a 63,000% return on your investment if you sold at that time – those are returns you’re unlikely to see in traditional investing over the course of your lifetime.

  • Liquidity

A good blockchain startup with a strong community to its name is a great way to keep your investment liquid. Buying traditional startup equity means that you need to find someone to sell it to, and if the startup is tanking you might never find that someone. Cryptocurrencies with large communities are always sold quickly and you wouldn’t have nearly as hard of a time to sell your coins as you would in selling your traditional equity.

  • Clear product roadmaps

Cryptocurrency companies tend to be very transparent in what they’re trying to achieve and how they’re planning to get there – they need to be in order to attract investors. Since this is one of the large selling points of blockchain, the fact that all transactions are a matter of public record, you can evaluate easily enough how well the coin is doing and whether it’s worth investing into.

Cons:

  • Highly volatile

Cryptocurrencies are extremely volatile, which bitcoin is the best example of. Bitcoin gained and dropped in value in the thousands by the day in quarter 4 of 2017. In comparison, the regular stock market feels rather slow and far less likely to have significant value changes short of a crisis occurring.

  • Network stalling as a result of weak engagement

For a cryptocurrency to be successful, it needs to be linked to a strong product that can attract a significant userbase. If there is no use to the currency in the first place, it’s price is going to quickly drop as it fails to attract users and engage with them. Network engagement is critical which as an investor you have little to no control over.

  • Shortage of resources

Just like any other startup, a crypto startup can run out of money or die out due to mismanagement of funds or other inherent problems. If the ICO that you bought coins at didn’t raise enough money and the company dies, then that was a bad investment. Many startups are doing pre-ICO seeding rounds to demonstrate demand for their product and availability of resources so that the ICO has a high likelihood of success.





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