Duan

Cryptocurrencies

With Bitcoin and Ethereum reaching all-time highs, the question on everyone’s minds is: “Should I or shouldn’t I invest in cryptocurrency?” Ask yourself this question instead: “If I knew the value of gold today, would I have invested in it 20, 30, or even 40 years ago?”. So do cryptocurrencies fall into this category, and are they a good investment?

Some cryptocurrencies are suitable investments, just like some businesses are worth investing in, provided you do your research and have a plan for either trading or holding. Cryptocurrency is the fastest appreciating asset class in human history. There is a lot of promise in a few of these coins.

Just like the California Gold Rush of 1848, many people are flocking to cryptocurrency in 2021 for the chance to make life-changing amounts of money. Before you pick up your pickaxe and hardhat, you need to know a few things about cryptocurrencies.

What Is Cryptocurrency?

A cryptocurrency is a cardinal asset designed to work as a medium of exchange and is tracked through a recorded ledger across multiple computerized databases. These “coins” or “tokens” are stored on decentralized markets, which allow each individual to deal directly with each other instead of operating within a centralized exchange. 

How Is Cryptocurrency Different From Traditional Investment?

Traditional Investments are defined as putting money into a well-known asset such as bonds, cash, real estate, and equity shares. The standard rule for investing is to see whether or not the company you want to invest in has a proven track record of delivering high-quality cash flow returns.

Cryptocurrencies are relatively new as Bitcoin was created in 2008 and still operates in a very volatile market. This volatility differs from traditional investments as Bitcoin’s future price can never be fully guaranteed, unlike more conventional investments.

Are Cryptocurrencies Safe?

The large gap in understanding between the internet and cryptography makes cryptocurrency the “wild west” of investment. If we look at the security aspect of the underlying blockchain technology that drives cryptocurrency, it has proven to be a very secure form of data encryption, meaning that it’s almost impossible for someone to falsify the existing ledger to steal someone’s crypto holdings.

Everyone has a public and private key within the ledger; think of these keys as your digital signature. In the real world, your handwriting signature looks almost identical every time you write it. In the digital world, that signature changes for each transaction you make.

It seems like many 1’s and 0’s commonly something like 256 bits, and altering the message even slightly, completely changes what that signature on that message should look like. Because of this, it is infeasible to find a valid signature if you don’t know the secret key.

The amount of signatures available with 256 bits equals 2256 different possible unique signatures. To call this number astronomically large would be giving away too much credit to astronomy. With each transaction being stored in the communal ledger and validated by others on the network, someone cannot forge a new transaction.

Your crypto-wallet is more secure than your bank account. But if you give someone your login information or, in this case, private key, they have an excellent chance of simply transferring your account’s content to their own. So keep your private key secret.

How Are Cryptocurrencies Value Determined?

Like every fiat currency used today, the value of cryptocurrencies comes from demand. When the need for crypto coins such as Bitcoin and Ethereum goes up, the price goes up, and when the market falls, so do the prices.

Are Institutions Investing In Cryptocurrencies?

Institutional investors are making big moves in the crypto space, with MicroStrategy and Grayscale, naming a few, diversifying their portfolios to hold cryptocurrencies.

  • Greyscale: On January 18th, 2021, Grayscale bought an additional $600 million worth of Bitcoin bringing their total Bitcoin holding to 642,610 BTC to $20.27 billion. Grayscale is also gathering Ethereum, of which their current total is 2.93M ETH to the value of $3.47 billion.
  • MicroStrategy: On December 21st, 2020, MicroStrategy CEO Michael Saylor announced on Twitter that they had purchased an additional 29,646 Bitcoin for $650 million at an average price of $21,925 per Bitcoin, bringing their total Bitcoin holding to 70,470 BTC to the value of $2.2 billion.

These are just two examples of institutional investors looking at long-term gains for crypto and realizing what the future potential of these currencies could be worth. They do not want to sell their portfolio in the short term to make nominal gains. They believe these digital currencies can change the world of finance as we know it.

Things To Know Before Investing In Cryptocurrency

  1. The Crypto Market is Volatile. If you look at the daily price charts of cryptocurrencies, they will seem erratic and unpredictable. In 2018 Bitcoin had a price fluctuation of 83.76%, from an all-time high of $19,660 to $3,219. Users with large amounts of Bitcoin known as “whales” can influence the price based on their activity. Just like any investment, crypto investing carries an inherent risk. The risk factor is considerably lower if you hold onto your coins during dips and look to the long-term gains.
  2. There is still a lot that is unknown. Cryptography technology is still reasonably new. Every day people don’t fully understand how the system works and operates. If you cannot entirely explain how your investment works, maybe don’t invest in that system and use an alternative, simpler, more established method.
  3. Cryptocurrencies could be used for fraudulent activity. For years governments all around the world have developed strict laws against money laundering. That is not the case for crypto. Because of its decentralized nature, no single country is in charge of regulating the crypto space as a whole. This medium opens cryptocurrencies up to be abused by “bad actors.”
  4. Cryptocurrencies don’t have a proven rate of return. Because the market is ever-shifting, it can sometimes be hard to predict the price in a few days, weeks, or even months. The most important part is to stay informed and up to date and plan your strategy accordingly.

Which Cryptocurrency Should I Invest For Long-Term Gains?

With over a thousand coins on offer, the two most well-known cryptocurrencies are Bitcoin and Ethereum. Other noteworthy coin offerings in 2021 include Polkadot and Cardano. Let’s look at these more closely.

Bitcoin

Known as Gold 2.0 is the most talked-about and coveted cryptocurrency. Bitcoin was invented in 2008. It has a total finite amount set at 21 million coins. Bitcoin is the currency to which all other currency’s value will be tied, as was the case with the US dollar-linked to the gold standard.

With its scarcity and fame, holding a few Bitcoin for the future might be your best bet for generational wealth accumulation. The price for Bitcoin in 2021 could reach as high as $120,000. Jeremy Liew, a well-known Venture Capitalist, predicts that Bitcoin’s price could reach $400,000 by 2035. That’s a gain of 1121.78% in 4 years.

Ethereum

Ethereum is a global, open-source platform for decentralized applications. There is an almost endless possibility for how the Ethereum protocol could be used. Many other cryptocurrencies already base their technology on the Ethereum protocol. The Chicago Mercantile Exchange announced its plans to launch Ethereum futures on its exchange in February 2021.

Ethereum 2.0 roll-out is currently in progress, and phase 2’s launch is anticipated in 2021. Visa’s also announced its partnership with Ethereum. Ethereum’s peak in 2021 could be as high as $27,000. Ethereum is predicted to be worth around $16,000 by 2025. That’s a gain of 1012.76% in 4 years.

Polkadot

As a network protocol, it allows arbitrary data – not just tokens – to be transferred across blockchains. Polkadot’s innovative design and development make it a multi-chain application capable of cross-chain registries and cross-chain computations. Polkadot’s current price is $16.42 and is predicted to rise as high as $42 by the end of 2025. That’s a gain of 155.79% in 4 years.

Cardano

Cardano uses a proof-of-stake blockchain platform. It combines pioneering technologies to provide security and sustainability to decentralized applications, systems, and societies. Cardano’s mission is to bring a new standard in technology, to challenge the old, and activate a new age of sustainable, globally distributed innovation. Cardano’s current price is $0.33 and is predicted to rise as high as $3 by the end of 2025. That’s a gain of 809.09% in 4 years.

Conclusion

If you’re looking to invest in the short term, then right now is a good time. With Bitcoin only starting its latest Bullrun in December of 2020 and set to top out around September 2021, there is still time to make a substantial amount of money. Altcoins are also on their way up and should top out sometime around October of 2021.

If you want to create generational wealth in the long-term, experts would suggest waiting and keeping an eye on the crypto markets and buying when the prices are low, and then holding onto your crypto no matter if the market goes up or down.