Cryptocurrency investment has been on the increase since 2009 when Bitcoin was invented. Cryptocurrency has had some great benefits and usefulness both for legal open-trade in places where there is a restriction to the amount of money that can be sent or received via wired transfer, to illegal or secret trades, like you would see on the dark web.
But even more interesting is the fact that cryptocurrency is also a great investment platform because of the high rate at which the value of the currencies increases over time. More like forex trading, cryptocurrency investors buy money at a specified rate and sell when the value has increased significantly. That’s the plan, however, but it doesn’t always go that way. Just like any other buying and selling business, different market factors affect how much profit or loss you would make at the end of each trading cycle.
Whereas I will not talk more in-depth about cryptocurrency investment, I will seek to highlight some pros and cons of the trade just in case you are still contemplating on joining the investment platform. This will give you a broad view of cryptocurrency trading so that your decision can be more refined and justifiable to yourself.
The startup of a cryptocurrency company usual begins with initial coin offerings(ICO). These initial coin offerings (ICOs) have the potential to create huge returns on your investment but also come with great volatility and risk.
Initial coin offerings, in case you are not so sure what they mean, are virtual money/fiat/digital coins that a new cryptocurrency wallet/platform gives out to the general public or investors at a real financial price. ICOs are usually limited in number and the price is fixed, they are like initial public offerings(IPOs) in conventional business platforms.
When investors who believe in the potential of the investment to yield profits buy these initial coin offerings, they can sell later at a much higher price considering the fact that these commodities are provided in limited number by the company.
So when you buy cryptocurrencies, you are either buying from the ICO pool or you are buying from someone else indirectly. ICOs could also be gotten through some activities (could be promotional, registration, etc) at the startup of the cryptocurrency company.
Whether you have a significant amount of capital or a little bit of extra cash, cryptocurrency is an investment worth looking into. Here are a few of the pros and cons associated with cryptocurrency investments, as well as the initial coin offerings(ICOs)
Which do I start with? Pros or cons first? Let me toss the coin to see, head for pros, tail for cons.
#coin tosses, head wins
So, pros first. Let’s go now!
Pros of Cryptocurrency Investment/Trading
Potential for massive returns
Shorter growth time
Clear direction of action
Potential for Massive Returns
One of the statistics that makes everyone consider investing in cryptocurrency is that $1,000 invested in Bitcoin in 2013 would be worth over $400,000 today. That’s like over 4000 per cent increase in worth within the last 8 years. Since then, a few other cryptocurrency companies have been invented but Bitcoin remains the most expensive cryptocurrency as at today.
But that’s not the only compelling example. Stratis raised $600,000 during their ICO in June 2016 and has since seen a 63,000 per cent rise in the price. Spectrecoin raised $15,000 in January 2017 during their ICO and has since risen over 13,000 per cent. There is great potential for massive returns in cryptocurrency trading.
Based on decentralized technology, cryptocurrencies are not controlled by anyone institution or company. Dedicated software is incentivized to update and maintain ledgers to ensure that data is correct and valid. This data includes details on each individual crypto coin, and it ensures that no duplicates or double payments are possible. As a result, investing in cryptocurrencies is safe.
Cryptocurrencies also have a system of financial security against liquidation and devaluation. The decentralized technology makes crypto coins to be produced in extremely controlled amounts to prevent too many coins from entering circulation and causing loss of value of the currency.
If new currencies have to be produced into circulation/coins base, aside from that which was initially produced in the initial coin base, it has to be through a very rigorous process requiring high energy, financial and time input. This process is known as cryptocurrency mining.
Cryptocurrencies, in general, are seen as a safe investment as they have a general upward trend. There are hundreds of currencies and not all are considered to be safe. However, you should always look to invest in the best, most reputable cryptocurrencies.
The industry is gaining legitimacy from regulators and international organisations, which are working to seek ways to implement the technology and solution they provide to develop existing systems. As a result, this has attracted more institutional investors and even university endowment funds. Larger corporations, such as Facebook and Twitter, are also looking to enter this sector, which will further push cryptocurrencies into mainstream use.
Shorter Growth Time
Since cryptocurrencies are riskier investments, it is best to compare them to angel investing and venture capital investing. Datum launched their ICO in late October 2017, having already raised $1.5 million in pre-ICO funds.
Since cryptocurrencies are network-based and Datum has already received a groundswell of support, investors know it is likely that they can begin cashing out their investments relatively quickly.
When you purchase equity in a startup, in order to realize a profit, you need to find someone to buy the equity from you or wait for an acquisition or IPO to occur. However, none of these options allows you to control when you cash out your investment.
If a cryptocurrency ICO is able to build a solid enough network, such as the 56,000-member Datum network, investors immediately have much more liquidity and can sell their cryptocurrency almost instantaneously. In other words, it doesn’t take much time before you find a potential buyer.
Clear direction of action
Perhaps the biggest advantage of investing in cryptocurrency ICOs over startups is the fact that startups often need to pivot multiple times and overcome initial speedbumps. When you see a set of founders asking for initial capital, you should recognize that the company they eventually take public will look drastically different.
With a cryptocurrency ICO, when you invest you know exactly what the network does and will be doing. As such, you are able to more accurately evaluate the product-market fit for the platform and can use that insight to determine your investment.
Cons of Cryptocurrency Investment
Potential network stall
Potential shortage of resources
Potential mismanagement and bankruptcy
Of course, when compared to investing in the stock market or even real estate, cryptocurrency ICOs are much more volatile. Issues such as hacking incidents can cause investors to lose all of their investment quickly. Granted, such drastic incidents are rare, but major drops in ICO value are not unheard of.
Potential Network Stall
The real value of any cryptocurrency relies on building a strong product that a significant network of users will want to use. However, if these networks either fail to attract users or never get users to actually utilize the platform, then the currency will likely see a drop-off in price. Many of the recent ICOs that failed to perform after launching did so due to a lack of network engagement.
Potential Shortage of Resources
Just as startups can run out of resources and be unable to continue operations, if a cryptocurrency ICO does not raise enough money or the startup spends more money than expected, the doors close and the network really takes off. Many cryptocurrencies are doing pre-ICO raising in order to have firm commitments of resources and demonstrated demand for the currency.
The legal perspective of cryptocurrency investments is debatable and various considerably from one country to the next. Countries like Malta and Singapore have already taken steps to enshrine cryptocurrency and blockchain use in law and many other countries are following suit. There are seems to be a reluctance in some countries, such as the United States, to take a firm position on the subject, leaving individual states to decide themselves.
This situation causes uncertainty and concern, especially for institutional investors. The general trend seems to be to regulate rather than eliminate, which is a good sign that matters will only improve henceforth.
Traditional investors sometimes complain that investing in cryptocurrency is putting money in something that doesn’t exist. This is true, up to a certain point. Today even fiat currency, together with huge volumes of data and services exist only in virtual form. There is nothing tangible, but that doesn’t make the data any less valuable.
Cryptocurrency is very similar to fiat currency, you can store it safely in crypto wallets, use it to purchase goods and services, and transfer it to third parties.
Potential Mismanagement and Bankruptcy
Ultimately, every cryptocurrency is a startup and has a team of founders running it. In order for the cryptocurrency to effectively navigate from ICO phase to mass-market levels, it needs a solid founding team. Before choosing to invest in a cryptocurrency ICO, make sure to look into the team’s background and evaluate whether they have the skill sets and capabilities to execute the project.
With new investment possibilities cropping up every day, it is critical to keep up to date with what options you have for wealth management. While portfolios need to be balanced, good portfolios tend to include some riskier assets, such as venture capital.
With a major emphasis on initial coin offerings(ICO), you have seen the pros and cons of investing in cryptocurrency. The aim was to familiarize you with both sides so you can make the right decision that suits you as far as cryptocurrency investment is concerned.
In the modern world, cryptocurrency ICOs offer many benefits that venture capital is lacking. When you start thinking about investing, take time to look into what ICOs are available and how their success might be able to generate massive returns for you. Also, don’t forget to factor in the risk and find ways to minimize them as much as possible.
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