There’s a lot of talk about cryptocurrency right now, not only between technology enthusiasts but also individual investors and investment firms. The price of a single Bitcoin has risen exponentially over recent years, including a 1,500 percent gain in 2011, and a 130 percent gain in 2016. The current price hovers close to the $9,000 mark, but the market is so volatile that it’s impossible to tell where the price will sit in a year, a month or even a day.
So, are cryptocurrencies a viable investment alternative to the stock market? It’s a difficult question to answer, but one that should nearly always start with a warning. Still, cryptocurrency is a new and emerging market, and at this point, it’s impossible to know how the journey will go. The price could continue to rise, or the bubble could burst at any point. Right now, cryptos are a much higher risk than stocks.
A few reasons exist for this additional risk. First, the value of cryptocurrency is hard to determine, based on speculation and buyer sentiment as well as factors such as rarity and functionality. The price fluctuates a lot, and the value is not necessarily based on any tangible physical asset. Private companies who you buy stocks can back up the value of their stock with earning histories, trajectories, assets and an IP.
It’s fair to say that cryptocurrencies fall into a different category of investment than stocks. The stock market is a well-established entity with rules and regulations, and physical companies growing and falling. Cryptocurrencies are, as it stands, more speculative and risky as an investment. Yet they have paid out significant gains to many of those who have invested so far, and the price continues to rise. If you are willing to take a risk, cryptocurrencies could offer significant rewards.
Several ways exist to invest in cryptocurrency. The first is to buy in with “fiat” currency using a broker or exchange. You can buy Bitcoin or several other “altcoins” with dollars and other currencies. Then, you can trade your purchased cryptos for other coins and tokens.
Thousands of altcoins are on the market, and so have more value and substance than others. Research each coin that you want to invest in like a company whose stocks you wanted to purchase to see which ones you think will offer value in the long term.
Many coins and tokens have specific functions. Litecoin, for example, is designed for faster transactions and as a “silver” to Bitcoin’s “gold.” CHPs, on the other hand, are an Ethereum token used to play online poker with people from all over the world on the CoinPoker site. You can win more CHPs by beating opponents, giving you the chance to improve your investment even more. It’s a good idea to invest in coins that you believe in and that you think are functional.
Aside from buying in and investing in Bitcoin and altcoins, you can also trade coins and tokens in a similar way to how you would day trade the stocks. The extreme volatility and daily and weekly fluctuations in the price of cryptocurrency creates plenty of opportunity for exploiting the rises and dips. Buy low and sell high, then repeat to make gains. Be warned though, day trading anything (be it crypto or stocks) can be risky, stressful and take a lot of time and effort. Insider trading is also a problem.
Cryptocurrencies are like stocks in some ways, but as a volatile and unregulated market, the risks are higher. Nobody can predict what will happen to Bitcoin and other coins and tokens. If you believe in the technology and the concepts, then this risk might be worth it, and you could use a small percentage of your investment portfolio for the cryptocurrency. (Disclaimer: This article is intended for discussion purposes only, and not for investment advice.)