Bitcoin, Ethereum, XRP, Dogecoin, what is it and should you own some? Over the past few years crypto currencies have been all the rage. It the past few months Bitcoin hit an all time high of $68,000 per coin. Many are wondering if adding some crypto to their portfolio might help. We’ll take a look at the pros and cons of adding crypto to your portfolio.
Crypto currency, what is it? Crypto currency is a digital currency that can be exchanged through a computer network that has no central authority. Much like the US dollar it can be exchanged to make purchases digitally. Crypto currencies such as Bitcoin, Ethereum, XRP, Dogecoin are all well known crypto currencies. These currencies have a limited supply of coins or tokens as they are referred to. That means that once they are there you can not make any more.
In order to purchase crypto you will need to convert dollars to crypto tokens. This can be done on at crypto exchange. There are several exchanges out there that allow you to exchange dollars to crypto. The way this process works is you open an account with the crypto exchange and connect your bank to the exchange and you are able to then convert your dollars to any crypto currency of your liking. The drawback to this is a fee when you convert these currencies. Typically fees can range from .04% to 3.99% depending on how much you purchase. This works both ways when you buy and sell your currency. Once you have your currency you will have to store it in a special crypto wallet that secures your currency. There are several providers of this and some are even included on the crypto exchanges.
The advantages of holding crypto for personal use or as an investment is its high volatility to grow fast. As we’ve seen over the past few years with Bitcoin going from a few thousand to over $68,000 you can make a lot of money fast. What attracts people to crypto currencies like Bitcoin is its ability to be used around the world and have the same value no matter where you are at. This is because it is decentralized and not controlled by a government.
The advantages sound pretty good especially in the past few years. Just a few thousand dollars of crypto could have easily doubled or tripled your value. However there are drawback to crypto that might make it unattractive. The first being that it is a currency. Many people who are holding crypto are treating it as an investment rather than what it is intended for which is a currency. A currency is used to be a medium of exchange for goods or service. But in the case of crypto it is being used as a volatile investment rather than a currency. The second drawback is the extreme volatility of these crypto currencies. In a given day its value can change by the thousand. Something as volatile as that can be extremely risky for both investors and those who intend to use it as currency. Price changes will have to be adjusted constantly to reflect the ever changing value of the currency. On top of it all if you are not careful, you can lose your wallet or delete your account and not be given access to get your crypto back if this happens.
Unlike holding a stock crypto doesn’t offer a dividend. The only value that crypto has to your investment portfolio is its potential for growth. Holding stocks can be much safer because of the regulations in place by the government to make sure that companies are reporting according to law. Crypto currencies are unregulated and can be manipulated and in some cases be a scam. Without its regulation and stability as well as several other variables above, crypto is not the ideal investment for long term growth.
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