After Bitcoin’s meteoric rise, there was a soaring interest in cryptocurrency. But, as the flagship cryptocurrency continues to tumble, many became hesitant to get in the game.
News regarding cryptocurrencies often adds to the confusion. Some financial experts swear that cryptocurrencies will rebound. Others claim they are a flash in the pan and will inevitably fall.
Additionally, new altcoins, cryptocurrencies other than Bitcoin, seem to pop up daily. Determining which have potential is challenging for investors with experience and novices alike.
If you are wondering whether now is the right time to jump into the cryptocurrency game, here’s what you need to know.
Cryptocurrency Is Entirely Digital and Backed by Nothing
Some believe that investing in cryptocurrency is like purchasing stock, but that isn’t the case. Cryptocurrencies are entirely digital, and effectively have nothing backing them.
With stocks, you essentially purchase a small portion of a company. This means your stock is associated with a form of asset, even though its long-term value isn’t guaranteed.
Cryptocurrencies aren’t portions of companies or even stakes in the technology backing them. Ultimately, they are not secured by any asset, making it easy for the value to diminish to nothing.
Cryptocurrencies Are Unregulated and Decentralized
Governments currently have no control over cryptocurrencies. Similarly, banks have no control over these digital currencies. Instead, they are unregulated and decentralized.
Many countries have yet to address cryptocurrencies formally. This leaves their legal status in question. However, regulations could be forthcoming, and those may impact the value of cryptocurrencies.
After a large-scale cryptocurrency heist in Japan, the island nation began examining the digital currency market. That move alone led to significant volatility in regards to cryptocurrency values. Should formal regulations be put in place, additional shifts are almost certain to occur.
Value Uncertainty and Large Investments
Since the cost of many cryptocurrencies has fallen recently, it could indicate the potential for growth. If the market recovers, and you had the opportunity to buy low, you could experience significant gains.
However, the sheer number of altcoins available alongside Bitcoin makes it hard to predict potential winners. Additionally, the lack of regulation means that scams exist. It may be hard to identify them in the sea of available options.
Ultimately, there is no way to know if a particular cryptocurrency will soar in value or crash and burn. The market is highly volatile. Even reputable options may not stand the test of time. This means that making large investments, such as your entire retirement savings or child’s college fund, might not be wise.
Is Cryptocurrency is Similar to Gambling
At this point, viewing cryptocurrency purchases as being similar to gambling may be wise. There is potential in the market, but essentially no guarantees.
Plus, the future of the market is highly uncertain. Government regulations could greatly impact cryptocurrencies. In reality, it’s too early to tell how that may play out.
If you aren’t averse to high levels of risk, then now may be the time to jump into the cryptocurrency game. Many coins have seen their values fall. For the high risk investor; this might be a chance to buy low. However, the market may not recover. Specific cryptocurrencies may fail, so you could lose your entire investment.
For those who aren’t comfortable with a lot of risk, then cryptocurrencies might not be the right choice for you.
Have you jumped into the cryptocurrency game? Tell us about it in the comments below!
Looking for more great articles from All Things Finance? Here are a few to get you started:
- What is Causing the Bitcoin Decline?
- Can Altcoin Investments Make You Rich?
- Tips to Avoid Being Scammed While Investing
Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.
