There are a lot of advantages to using and investing in crypto. You might invest in crypto because of Bitcoin's impressive price trajectory since its creation, fast and cheap crypto transfers, security, privacy, anonymity, a hedge against inflation, a store of value, etc.
1. Bitcoin's price history
When we think crypto, we think Bitcoin. Investing.com data shows Bitcoin was worth only $0.10 in 2010. By 2013, it was already trading for $250. Early investors witnessed a growth of over 250,000%! The stock market would take ages to replicate such returns.
Bitcoin had reached $1,000 by the beginning of 2017 and $20,000 by the end of that year. This is almost 2,000% growth in just one year. At the end of 2021, Bitcoin attained its all-time high of over $68,000. If you had invested in early 2017, you would have gained almost 6,800% on your investment.
Historically, Bitcoin rallies pull the entire crypto market along. For example, Solana added 575% to its value last year, and 2023 wasn't even that big of a rally.
According to Morgan Stanley, it's now crypto "growing season." It depends on your tolerance for risk, but investing in a few different cryptos might make sense. Altcoins are far riskier than Bitcoin, but the potential gains are much greater.
2. Fast and cheap transactions
A traditional fiat bank transfer takes three to five days, stock trades take three days to settle, and a wire transfer is completed in at least a day. On the other hand, crypto transactions can be completed in a matter of minutes. If you invest in crypto, you can move it quickly and easily. The blockchain confirms the block that contains your transaction, settles it fully, and you or your recipient can use the funds.
Crypto transaction costs are relatively lower than other financial services. An international fiat transfer costs much more. Even if high blockchain demand hikes up transaction costs, crypto transfer fees remain lower than wire transfer fees.
According to the World Bank, remittance fees are over 6% of the amount being sent on average. This means around $62 of each $1,000 transferred to family or friends goes to third parties. The transfer fee on Bitcoin transactions is fixed. Currently, it is less than $3 of each $1,000 sent.
3. Invest in crypto as an inflation hedge
Another reason to invest in crypto is that it can protect against inflation. Bitcoin's creator placed a hard cap on the total number of Bitcoins that can be generated. The price of Bitcoin should keep increasing.
Bitcoin is not the only crypto that uses this mechanism. Others include Binance Coin, Solana, XRP, Lido stETH, and more.
4. Full control and security
If you invest in crypto, only you will have access to it. This happens via a private key, which provides full control over purchasing, sending, and receiving crypto. While governments can always choose to intervene, free market economies have chosen an alternative path. The UK, the US, India, and other democracies are trying to grasp and regulate cryptocurrencies to safeguard the market the same way regulators adopted measures to make stock investments safe in the past.
Nobody can access your crypto or sign off on transactions on your behalf unless they gain access to your private key. An attack on the blockchain and an attempt to modify it would require a prohibitively high volume of computing power. The attacker would need to confirm multiple blocks before the ledger's accuracy can be verified by the rest of the network. It would be incredibly expensive on the Bitcoin blockchain and the Ethereum Mainnet.
Crypto accounts are hacked because some exchanges have poor security measures. It is safe to store your crypto in a hardware wallet.
5. Invest in crypto as a store of value
Traditional stores of value like fine art, gold, wine, silver, and whiskey are difficult to store and move. For example, an investor in fine art will need to make sure they dispose of suitable storage facilities. Damage to the items will affect their value significantly. Each asset requires certain storage conditions to protect its value.
In contrast, crypto is stored via an app in a private wallet. You can transfer it out of that wallet at the click of a button. You can sell some of your Bitcoin if you need emergency funds in 10-20 minutes – all you need to do is swap it for fiat on an exchange. Cryptocurrency runs in a highly liquid marketplace. It's seamless to enter and exit the market as it trades on exchanges 24/7.
6. Invest in crypto to diversify your portfolio
Cryptocurrency is known to be resistant to inflation and can generate substantial returns. It has an unstable correlation with bonds and stocks and has demonstrated a negative one with the US dollar on occasion. This means when the dollar was weak, Bitcoin was strong.
If you have an above-average risk tolerance, you might invest in crypto as a worthwhile addition to your portfolio.
7. You have your pick of ways to invest in Bitcoin
Bitcoin is currently trading for $52,162 and recently reached a trillion-dollar market cap for the first time in almost three years. The next halving event will take place in April, and the 50% drop in miner rewards comes amid rising interest from institutional investors.
If you support the bullish view of the Bitcoin halving cycle, it might make sense to buy Bitcoin now. According to Morgan Stanley, the biggest gains for the flagship crypto have always come within a year to a year and a half of the halving, i.e., the "growing season" referred to earlier in this article. If you invest in crypto during this season, the market's natural movements should take care of the rest.
Alternatively, you can buy Bitcoin itself. Some investors prefer to hold the actual asset. If this is your first time investing in crypto, though, the most direct approach isn't always the easiest. What's more, most brokers don't offer direct buying and selling.
Bitcoin-based ETFs are another option. On these, you can buy and sell Bitcoin just like you would any other shares or ETF. You can opt for limit-priced orders, and you might already have a brokerage account that features Bitcoin-based ETFs. Popular products include ARK 21Shares, the iShares Bitcoin Trust, and Grayscale Bitcoin Trust.
You can buy any stock connected to the price of Bitcoin. For example, MicroStrategy's balance sheet is full of Bitcoin. The first crypto comprises around a third of all trading volume on Coinbase, the leading US crypto exchange.
Another way to invest in crypto indirectly involves buying Bitcoin mining stocks. The upcoming halving may seem like an excellent catalyst for companies such as Riot Platforms or Marathon Digital Holdings. However, miners could suffer losses even if they operated their Bitcoin mining facilities and rigs at full capacity. The only way this won't happen is if the price of Bitcoin doubles.
Risks of investing in crypto
Unlike with credit and debit cards, you don't have legal protection for cryptocurrency payments. Typically, cryptocurrency payments are not reversible.
Cryptocurrencies don't have backing from central banks or governments.
When you hold money in a deposit account, you have protection for your funds. Storing cryptocurrency online doesn't come with the same protection.
Cryptocurrencies are notoriously volatile. Bitcoin dropped from $68,000 to around $20,000 in a matter of months around the turn of 2022. You might invest in crypto and buy assets for thousands of dollars only to have them worth hundreds weeks later. Then, you'll have to wait a while before the price increases again.
Finally, there is great variation between cryptocurrencies themselves. If you choose to invest in an altcoin, look into the claims its creator is making. Read reviews and feedback from previous investors and look through several search result pages for complaints.
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