Rounding it up
Crypto is a highly volatile, yet potentially groundbreaking, new asset class.
There are many great reasons to invest in crypto, including the belief that digital assets have the power to change the world.
Crypto can also be part of a well-diversified portfolio, but it shouldn’t be your only investment.
Although it has the potential for great rewards, you shouldn’t invest in crypto solely because you want to get rich quickly.
Avoid jumping on the crypto bandwagon just because celebrities endorse it. Always do your own research first so you understand the risks.
Crypto is easily one of the hottest investment products on the market. Every day, there’s news of a groundbreaking new cryptocurrency or crypto-backed product that claims it’s going to disrupt the financial world as we know it.
But is crypto really all it’s cracked up to be? Is it actually worth investing in?
In this article, we’re going to discuss three of the best—and three of the worst—reasons why you should—or shouldn’t—invest in cryptocurrencies. We’ll talk about the advantages and disadvantages of putting some of your hard-earned money into this new asset class so you can decide if it’s the right investment option for your portfolio.
The 3 best reasons to invest in crypto
If you ask someone who’s keen on crypto why you should invest, they’ll likely be able to rattle off a dozen or so reasons to join the cryptosphere. That said, here are three of the best reasons why you should invest in digital assets:
1. You’re looking for a new way to diversify your assets
Of all the reasons to invest in crypto, this one is probably the best. Simply put, if you already have a well-established and diversified portfolio of stocks, bonds, and ETFs, you might be wondering if there’s anything else out there that’s worth investing in.
Naysayers will wax poetic about the volatility and potential lack of utility of crypto, but recent trends suggest that it’s around to stay. As such, crypto is arguably one of the most intriguing asset classes out there because it offers a potential for future growth that’s unfathomable in traditional securities like stocks and bonds.
Plus, there are thousands of different cryptocurrencies avilable, each of which hopes to change the world in its own unique way through various blockchain-related projects. Although it takes quite a bit of research to learn about and understand these projects, some of them truly have the power to change the way we interact with money in our day-to-day lives.
Therefore, using crypto to diversify an already well-established investment portfolio can be a great move with potentially massive rewards.
Of course, with the potential for great reward comes the possibility of major losses, so don’t put all your eggs into one basket. But it’s worth considering investing in a variety of cryptocurrency projects that you believe in if you’re looking to branch out into a new asset class.
2. You think crypto could revolutionize the world
Whether it’s stocks, bonds, precious metals, or fine art, if you’re going to invest your money in something, you need to believe in its potential. Crypto is no exception.
Although some people invest in crypto just because they want to jump on what they see as a highly lucrative bandwagon, many others really believe in the power of crypto to change the world.
In fact, most cryptocurrencies exist because they’re designed to power some sort of blockchain-based system that hopes to disrupt how we send money, how we disseminate information, or how we distribute resources around the world.
Of course, there are many cryptocurrencies out there that aren’t much use to anyone. So-called memecoins are designed as a joke and they often pick up big followings on social media that lead their value to rise exponentially in a matter of days.
There certainly are people out there that see memecoins as great investments. But when we talk about the potential revolutionary applications of crypto, most inventors have other coins in mind.
For example, there are coins like Stellar Lumens (XLM) and Ripple (XRP) that want to make sending remittances as cheap and efficient as possible. Others, like Chainlink (LINK), hope to combine the power of the blockchain with real-world data to make the process of sending money and information super streamlined.
But these are just some of the many potential revolutionary applications of cryptocurrencies. What’s important is that you do your own research to decide what’s worth investing in.
3. You’re interested in the power of DeFi
DeFi, or decentralized finance, is a type of financial system that’s not controlled by one central authority or company, like a government or a bank.
Most DeFi products and systems operate on a blockchain, where they are accessible to anyone with an internet connection. There are hundreds of applications for DeFi out there, including crypto-backed loans and crypto-backed high-yield savings accounts.
The idea is that DeFi products can make financial services possible for people around the world who don’t have access to traditional banks and brokerages. They often run on or use cryptocurrencies to function, making them accessible for the global financial community.
Many people who are unbanked and underbanked often resort to ‘fringe banking’ services, like payday loans and wire transfer companies, to send and receive money. These services are very expensive and they often lead people into a debt cycle that’s hard to break.
While DeFi can’t solve everything on its own, many people believe that it has the power to do good things. In addition to helping the underbanked, DeFi can potentially offer a new way to access global financial services from around the world. DeFi could also provide better interest rates and more competitive loan terms than what you find at a traditional bank.
To be clear, there are risks involved with DeFi, which is by nature highly unregulated. However, there are also countless potential benefits to different DeFi applications that could help people around the world and provide major returns for crypto investors.
The 3 worst reasons to invest in crypto
There are many excellent reasons to invest in crypto... and many not-so-good reasons. Although every person needs to decide for themselves whether crypto is a good investment, it’s worth considering what your motives are before you start buying digital assets.
With that in mind, here are three of the worst reasons to invest in crypto:
1. You want to get rich quickly
Many newcomers to the cryptosphere find themselves enamored with the possibility of using Bitcoin and other digital assets to get rich as fast as possible.
We get it. Crypto is exciting and sexy. It’s also hard to overlook the many stories out there of someone who bought 10,000 Bitcoins when it was worth fractions of a penny and now they own 4 yachts and a private island where they live out their dreamy FIRE lifestyle. Who wouldn’t want that sort of Cinderella success story?
But the reality is that getting rich in a matter of days just by investing in crypto probably isn’t going to happen. Sure, you can get lucky and nab thousands of some new coin right before its price jumps 10,000%. This stuff does happen and people do become crypto millionaires overnight. But these sorts of events are few and far between.
Rather, a better way to look at crypto is as a potential source of long-term value growth. You might get lucky and get rich next week, but don’t count on it.
If getting rich quickly is your only motivation behind investing in crypto, it might be best to take a minute and re-evaluate whether that’s the best option for your financial portfolio. In most situations, it’s best to bring a long-term perspective to crypto (or any other investment, for that matter).
2. Your favourite celebrity tweeted about it
If you spend enough time on social media, you probably know that many popular celebrities have very strong opinions about cryptocurrencies. Some are full-on crypto bulls (meaning they think crypto has the possibility for major rewards) while others think that the whole thing is a flat-out scam.
Either way, if there’s one reason why you shouldn’t start investing in crypto, it’s because your favourite celebrity or influencer tweeted about it and you want to join in on the fun.
Unless that celebrity or influencer happens to be a well-respected financial analyst whose opinion you trust and appreciate, it probably isn’t wise to jump headfirst into an investment just because they spoke about it on Instagram live.
Sure, you don’t need to have a Ph.D. in finance to be good at investing. There may also be some influencers out there that have good investing advice. But it generally isn’t best to buy crypto because you want to do as the celebs do.
Using a celebrity’s tweet as inspiration to go out and do your own research on the value of a given crypto investment is one thing. But going straight from Twitter to the crypto exchange to jump on the latest trend isn’t exactly the best reason to invest.
3. You think it’s a replacement for a diversified portfolio
When a hot new investment product like crypto comes onto the scene and offers the potential for 100% gains in a matter of weeks, it’s easy to see why some people might want to abandon ship on their stale, old mutual funds.
However, crypto is not a replacement for a diversified portfolio that’s filled with investments in various asset classes. If you’re considering selling all your stocks and bonds to go all-in on crypto, it might be worth pumping the brakes and re-evaluating your motivations for investing.
Ultimately, crypto is a potentially awesome addition to a well-diversified portfolio. But with the current rates of volatility in digital asset markets, you’d be hard-pressed to find even the most crypto-savvy of financial advisors that would encourage you to go 100% into crypto.
A better approach to crypto is to think of it as a new frontier that could help your long-term investment strategy. If it’s not right for you, that’s fine, too. But digital assets aren’t yet a one-stop-shop for a diversified portfolio, and it’s important to understand that before you get started.
Should you invest in crypto?
At this point, you understand three great and three not-so-great reasons to invest in crypto. But the question remains: should you invest in crypto?
We can’t answer that question for you. It all comes down to whether you believe in the power of crypto both to change the world and to gain monetary value over time. It also depends on whether you fully understand and accept the risks that come with buying digital assets.
If so, crypto might be for you. If not, there are plenty of other excellent ways to build your nest egg, too.
Gaby Pilson is a writer, educator, travel guide, and lover of all things personal finance. She’s passionate about helping people feel empowered to take control of their financial lives by making investing, budgeting, and money-saving resources accessible to everyone.