Benefits And Drawbacks Of Cryptocurrency Investment

By | August 7, 2021
Benefits and Drawbacks of Cryptocurrency Investments

Here are some benefits and drawbacks of cryptocurrency investment.

Benefits of Cryptocurrency Investment

1. No Central Issuing Authority

Unlike conventional currencies such as the US dollar, Canadian dollar, and British pound, most cryptocurrencies are issued through a decentralized network. This network collaborates to find a cryptographic calculation that will result in the creation of a cryptocurrency. Mining is a technique that incentivizes involvement in these networks. The community must work together to fix cryptocurrency exploits and to emphasize the value of trusting others.

2. Potential for high returns

The potential for high profits is one of the key reasons in favor of cryptocurrencies. For example, the S&P 500 index of large-cap US equities has compounded at an annualized growth rate of 14.5 per cent (in USD, net dividends reinvested) over the five years to 31 December 2020; over the same period, the price of bitcoin in USD has compounded at an annualized growth rate of 131.5 per cent. In the environment of meagre government bond yields, the promise of high returns becomes even more appealing. Furthermore, significant prospective returns are tempting to investors who expect equity returns will be reduced for a while following last year’s outstanding performance.

3. Transparency in Cryptocurrency

One of the primary reasons why some people have lost confidence in banks is that they are centralized corporations with little to no transparency. On the other hand, Cryptocurrency is utterly transparent because it requires the formation of a community to succeed.

The fundamental advantage of cryptocurrency investment is that it limits one party’s influence, enhancing transparency and centralized authority. However, many depositors are ignorant of how the bank is using its funds. When it is discovered that banks are putting their clients’ money in danger in ways that the depositor was previously unaware of, they proceed to collect their money. One of the issues that arise during bank runs is the scarcity of cash in banks.

4. Low Barrier of Entry

Because of Bitcoin’s low entry barrier and present regulatory climate, nearly anyone can acquire and trade cryptocurrencies. This runs counter to the standard vetting process applied to hedge funds, bonds, and other assets. Thus, for many people whose traditional investments have turned off, Bitcoin and cryptocurrencies may appear to be the most incredible option.

5. Low Fees

This benefit is self-explanatory: no one wants to pay hefty fees, right? Another attractive feature of Bitcoin is its minimal transaction fees. Costs vary depending on the exchange; however, Bitcoin payments have minimal to no fees. Although minimal rates are the norm, additional fees will be charged. Transactions with more considerable fees are processed more quickly and are prioritized on the network.

Although it appears that everything is rainbows and sunshine after reading those benefits, and Bitcoin technology seems to be outstanding and straightforward to use. Do not be fooled because, along with the numerous benefits of Bitcoin, several drawbacks may cause you to reconsider engaging in this type of trading.

Drawbacks of Cryptocurrency Investment

1. Regulatory Concerns

With increased regulation establishing locally at the state, municipal, and federal levels, Cryptocurrency has attracted the attention of various regulatory agencies. In the United States, the SEC, FBI, and Treasury have been closely monitoring and pursuing changes to prevent the misuse of such securities.

2. Cryptocurrency is a High-Risk Investment

Bitcoin and altcoins, or Cryptocurrency, may be considered an investment because of their fluctuating value but were not inherently. There is no clear path for the future of Cryptocurrency as an investment. Despite Bitcoin’s record high price, forking has caused a permanent split between its users and creators.

Traditional investments, such as funds, have gotten so complex that many people don’t understand how they function. In the opposite direction, Cryptocurrency is becoming more widely available to the general people. Bitcoin was only available to individuals with advanced expertise in the subject. Anyone with an AMEX and a government ID can now buy Bitcoin in minutes. All of this is achievable without a fundamental understanding of the underlying technology. Satoshi’s objective of Bitcoin was to limit transparency. However, it has become more accessible since the arrival of third parties, relegating the treading of such devices.

Bottom Line

Finally, before you begin investing, it is vital to understand both sides of the coin. It is critical to conduct your study about the benefits and drawbacks of trading bitcoin and Cryptocurrency. Bitcoin is the future’s currency. It has the potential to improve our daily lives in a variety of ways. We can put such advantages to use through education. Let us urge others to broaden their horizons as we enter a world brimming with the limitless potential of bitcoins!

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