It’s no secret: Cryptocurrency is making daily headlines. Whether Tesla’s Elon Musk is tweeting about crypto or financial advisors on CNBC are talking about how much Bitcoin stock is surging, cryptocurrencies are on everybody’s minds. But what is cryptocurrency? Is crypto a good investment?
On the other hand, the everyday person doesn’t know the first thing about this relatively new technology-backed currency. They’re likely wondering: What is crypto anyway? Should I invest in cryptocurrency?
If you find yourself lost in the blockchain (more on that below!) and seeking some clarification, read on and figure out whether you should stick with traditional investments or start looking into cryptocurrencies, stat!
On a very basic level, cryptocurrency is a digital currency whose value is based on blockchain technology.
A blockchain is decentralized technology that resides across various computers, monitoring and recording transactions you make. Your transactions are recorded in “blocks.” These blocks are linked together through an encrypted “chain” that includes your other crypto transactions.
Because the data is housed in various places, theoretically no one governing body can control a cryptocurrency or how much it's worth.
The blockchain is, simply put, a kind of digital "book" that keeps track of everything in chronological order. Only actual transactions show up, and no one can go in and make changes, ensuring that any changes are due to the market, not the creators of the currency.
While a central authority manages the U.S. dollar (USD), there is no central authority managing cryptocurrencies. A cryptocurrency’s users will decide on the value. This currency is also encrypted for security purposes.
Currently, you can use these digital assets to purchase goods and services, or you can simply invest in them.
You may be able to use your crypto assets to make purchases, but generally, stores and merchants haven’t widely accepted them as legal tender.
Instead, you can exchange the value for gift cards or you can get BitPay, a debit card that will convert your cryptocurrency into USD.
Just keep in mind that you’ll have to pay fees to convert it and use it, so be aware it could end up costing you money to use the crypto you've invested in.
Many crypto investors use cryptocurrency as an alternative to investing in the stock market or other types of investments.
Some people have made a lot of money on crypto, especially Bitcoin, which as of writing, is worth nearly $50,000 per share.
The investors who got in early have now made “liquid gold” on their investment in Bitcoin.
There are thousands of types of cryptocurrencies out there on the crypto market; more than 15,000 of them are traded publicly. Some popular cryptocurrency types include Bitcoin (or BTC), Ethereum (or Ether), Stablecoin, Dogecoin, Cardano, Litecoin and Tether.
Here’s a more in-depth rundown of some of the different cryptocurrencies you may have heard of:
Cryptocurrency is certainly fascinating. Because it’s a fairly new currency, changes happen rapidly and the market can be exciting to some who are willing to take the deep dive….
You may be wondering: Is crypto a good investment?
The short answer is no, it is not–unless you have disposable income and don’t care about possibly losing it.
The crypto market can be very volatile and it’s not yet a proven investment. In fact, investors don’t see cryptocurrencies as investments at all; they view them as speculation. For you to make money off crypto, someone has to buy it for a higher price than you, meaning that there is no cash flow associated with it or any guaranteed return on investment.
Even the most popular cryptocurrency, Bitcoin, is far from stable. While it reached a high of $68,000 per share in November of 2021, as of December 2021, it’s worth around $48,000 per share. This is not “normal” behavior for a typical investment.
As such, you could easily lose your return on investment. Plus, it isn’t easy to cash in crypto; you’ll need to go through a crypto exchange and you may pay taxes, as well as an exchange fee from a third-party broker.
Putting money that you can’t afford to lose into crypto is especially risky if you want to use it in the long term, like for retirement or your child’s education. One day you could have it, and the next, it could be gone.
Plus, the future remains to be seen whether or not governments will start regulating crypto. There's also growing concern about the environmental impact of cryptocurrencies.
You may have heard stories about crypto billionaires. These crypto investors are few and far between, as they are outliers. You probably have a better chance of winning the lottery than making millions or billions off crypto.
Other types of investments are risky, but not as risky as cryptocurrency. With the stock exchange, a stock could rise or plunge depending on market conditions. However, investing in “blue-chip” stocks from stable companies in a diverse portfolio is going to be much less risky than investing in startups. Want to learn more about investing in stocks? We have a guide on investing for beginners for you.
High-yield savings accounts, certificates of deposit and savings bonds are investments that are less risky than stocks. You could add them to your portfolio for diversification.
To prepare for retirement, you could go to a financial advisor, ask for investment advice, and invest in mutual funds based on past performance. They may not be as exciting as crypto, but you could get a pretty solid return overtime without taking too much risk.
Remember: If you're financially ready to invest, think carefully on what financial goals you want the investment to reach. The earlier you start investing your money, the more time it’ll have to grow.
Some people invest in crypto and may even fall victim to scams because they are trying to get rich quick. When it comes to saving money, slow and steady is typically better–and more realistic. Though some of the tried and true strategies are not trending like crypto, you’re much better off trying them.
Put savings into an emergency fund or rainy day fund just in case you lose your job or another source of income. You can always put it into high-yield savings so you make some money back. Look for a savings account that won’t charge you fees and doesn’t have a minimum limit. You can also research credit unions, which may offer you more than banks.
Make sure you pay off your debt, too. In fact, paying off your debt before you save for more than a rainy day fund is advisable.
It makes financial sense: If you’re being charged 15% interest on a credit card, for instance, and only make 0.50% on your high-yield savings, you won’t get very far. Tackle your debt with the highest interest rate first.
While becoming an overnight millionaire is tempting, it’s usually just a dream.
Many people have lost their money to risky investments, and crypto is one of the riskiest due to its volatility.
Stick to what is proven, and less risky, for the sake of your financial health.