Should I Invest in Cryptocurrency in 2022: Risks and Safety Measures

Cryptocurrencies have made investors a lot of money just within the last year alone. But 2022 has been a rough start for the crypto market with cryptocurrencies like Bitcoin and Ethereum being down from their all-time highs. Bitcoin is the most popular cryptocurrency but there are thousands of others available for investment. With the crypto market growing in size and popularity every day, you may be wondering if you should allocate a portion of your investment portfolio to this emerging asset class.  

Why Invest in Cryptocurrency?

Even though cryptocurrencies have seen massive success in a short period of time, there is still a lot of uncertainty surrounding their value. That said, it can be difficult to predict the trajectory of cryptocurrency as a long-term investment. However, as you get educated and there is greater crypto adoption, the viability of cryptocurrencies may become more visible as time progresses. 

You can include cryptocurrency in their portfolios to increase their asset diversification. It’s important to diversify your assets to manage portfolio risk. If one asset class falls, others can balance them out to minimize losses.

Cryptocurrency can serve as an alternative hedge against inflation. Each year, money loses its value due to the rising prices of goods and services. Returns from cryptocurrency investments can beat the interest rates banks give their users for holding money with them. Simply holding savings in the bank may not be able to provide returns to beat inflation over time. This means your money loses value in the long run and diminishes your purchasing power if not invested. People want to put their money in cryptocurrency investments that have the potential for high returns and despite their volatility, some cryptocurrencies have provided outsized returns, proving to be a profitable asset class for investors.

Investing in cryptocurrency can offer exponential investment portfolio growth. Bitcoin was one of the best-performing assets in 2021, recording a 60% return for the year. If you think you missed the boat on Bitcoin, there are new crypto investment opportunities that are emerging that may have future potential to grow. But the crypto market is dense and vast, so in order to make the cryptocurrency investment that makes sense according to your investment goals, it’s important to do research and educate yourself on different tokens out there. 

If you are curious about investing in cryptocurrency, you need to know the nature of investing in the cryptocurrency market. Because cryptocurrencies are speculative assets, there is a lot of volatility. These massive price swings are a normal part of the crypto market. The value of a cryptocurrency can fall as much as 5% on a given day. Crypto investors need to be comfortable with these massive price swings if they’re considering participating in this market. 

Investors should also be aware of the amount of cryptocurrencies that are on the market. While Bitcoin is the most popular, there are thousands of cryptocurrencies to choose from. In order to narrow down which investment is right for you, it's vital to do your due diligence and research the cryptocurrency of interest before taking the risk to invest.

Cryptocurrency Investment Risks and Safety Measures

Because cryptocurrency is new, there is speculation around the future value of the digital asset. Bitcoin has only been around for a short period of time, so there is little history to assess what value it can bring to the financial monetary system. Rather there is a lot of excitement around the future of cryptocurrencies and their technology. Cryptocurrencies currently have little to no utility at the moment, meaning, users can use Bitcoin and other cryptocurrencies to exchange goods and services. However, cryptocurrencies have reached mainstream investors, and as more participants come into crypto and more adoption takes place, there will be a better assessment of its future viability. 

Even though cryptocurrency investment is speculative at the moment, this doesn’t mean investors should shy away from allocating toward digital assets in their portfolios. A safety measure that you can take is to allocate a small portion of your investment portfolio to cryptocurrencies. This way when your investments experience volatility as a result of rampant crypto price fluctuations, only an affordable, small portion is impacted. That said, only invest what you can afford to lose. Investors must go into crypto investments knowing that because these assets are speculative, they can possibly go to zero or be a success in the long term.

What are the Risks of Cryptocurrency?

The blockchain network that allows cryptocurrencies to operate is a decentralized transparent network, however, cryptocurrency exchanges where cryptocurrencies are bought, sold, and stored can be vulnerable to cyber-attacks. In the past, crypto exchanges have been hacked by cybercriminals who were able to breach exchanges and steal cryptocurrencies worth millions of dollars. One of the largest cryptocurrency exchanges, Binance, was hacked in 2019, where hackers stole 7,000 Bitcoin worth about $40 million. While these hacks are few and far between, crypto security is still a risk. 

Is Cryptocurrency Safe? 

While there are risks in the crypto market, there are new developments that are strengthening the industry. There are security measures you can take to make sure to store cryptocurrency safely. The standard way to store crypto is online. This is also called a hot wallet, which is a digital wallet that is secured by a long password. This convoluted password is needed to access the crypto in your wallet. But because many crypto exchanges are open-source software that have public and private libraries, this can leave open the possibilities for hacking attempts. To prevent this, another way to secure crypto assets is through a cold wallet or a wallet that is stored offline. This usually comes in the form of a USB or hard drive. You would have to transfer their crypto from their hot wallet to their cold wallet, which can protect your crypto from cyber attacks.

Should I Invest in Bitcoin: Pros and Cons

Cryptocurrencies are not going away and the popularity surrounding them will only grow stronger in 2022. In order to determine if Bitcoin is the right investment for you, is to see if the digital asset aligns with your long-term investment goals. It’s important for investors to understand the characteristics of Bitcoin and the crypto market to see if Bitcoin fits within their risk tolerance.

Bitcoin’s value is down about 24% year-to-date, falling to around $34,000, down about 50% from its all-time high of $68,990. Why has Bitcoin dropped? The nature of the crypto market is very volatile. The volatility is something you will need to understand and get used to. There is persistent volatility in Bitcoin because there is uncertainty around crypto risks and the challenges that pose to customers. 

Invest in Bitcoin or Ethereum? 

Bitcoin was the first cryptocurrency to have been created. It is thought of as digital gold and many view Bitcoin as a store of value. Ethereum is a decentralized blockchain that uses Ether as its native currency. Ethereum is a new revolutionary technology where applications can be built on its blockchain. A key feature of the network is smart contracts. These are irreversible agreements recorded in code on the blockchain. While there is a finite supply of Bitcoin, capped at 21 million, there is an infinite supply of Ethereum. Bitcoin relies on the proof-of-work in order to validate transactions to keep the network operating, while Ethereum is moving away from this method and into proof-of-stake, which is said to be a more efficient and environmentally-friendlier option. 

While both Bitcoin and Ethereum have grown in popularity, there are a lot of alternative coins that have come on the scene, challenging their dominance. Alternative coins or altcoins are created in order to address the shortcomings of Bitcoin. You can find all emerging coins on the ATAIX trading platform. Thousands of altcoins are currently on the market, but all of them may not be around for the long term. That is why it’s important for you to investigate the purpose of the cryptocurrency and evaluate whether they have the utility to stick around in the long run.

What Cryptocurrency Beginners should Invest in?

If you are new to cryptocurrencies, the first thing you should determine is if you have the risk tolerance to invest in cryptos like Bitcoin. Given the volatile nature of cryptocurrencies, if you are not concerned with short-term volatility and believe the value of their crypto will increase in the future, you have the right investment mindset. 

You should also look at the crypto’s market capitalization. This is the total amount of the cryptocurrency’s supply. The larger the market cap, the larger the community around the crypto. This means there is a higher trading volume. Cryptocurrencies with higher market caps tend to be more stable. 

To get started, you can research Bitcoin and Ethereum. These are the two cryptos that have great support in the industry and have exponentially increased in value in a short period of time. 

Conclusion

Investing in cryptocurrencies is exciting but like any investment, it also comes with risks. You should have safety measures before you start investing like making sure you aren’t investing too much money that you are willing to lose. It’s best to start your crypto research with the most popular cryptocurrencies Bitcoin and Ethereum so you can learn the fundamentals of the asset, and then steadily grow your knowledge of other cryptos from there. Educating yourself is the first step to finding opportunities in the crypto market so make sure to do your research before any crypto investment.