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Crypto News: Should You Invest in Crypto? Benefits and risks to consider before investing
The growing appeal of cryptocurrency around the world has also had a similar impact on Indians. According to Nasscominvestors in cryptocurrencies have seen a significant growth of 1,100% between 2022 and 2023. This remarkable transformation reflects the increased interest of the Indian population in this area, but it comes with a crucial question: which individuals If you haven’t participated in the recent growth of cryptocurrencies, should you consider investing in cryptocurrencies?
Potential investors should research the potential pros and cons associated with cryptocurrency investing before deciding to pursue it. Some of these assets intrigue investors based on the developers’ mission statement, while alternative investors favor assumptions about the price action and volatility of their favorite digital assets. Investing in cryptocurrencies is often complex, but all of these assets are very different in nature. Beginners should always be prepared to lose their capital, which can be avoided with proper prior analysis and due diligence.
What are the potential benefits of investing in crypto?
The first benefit of crypto investmentWhat comes to mind is the significant growth potential. Bitcoin, the world’s largest cryptocurrency, highlights this potential with its remarkable returns over the years. Investors should keep in mind that past returns do not guarantee future returns, but in 2021, the value of Bitcoin has soared by over 60%, demonstrating the possibility of significant returns. Meanwhile, in 2022, it has fallen by more than 70%. Since then, the value of Bitcoin has increased by almost 49.2% through 2024. This highlights the inherent volatility associated with this particular asset class.
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Cryptocurrencies are part of decentralized networks, which means they often offer autonomy and increased transparency. Transactions of these assets are recorded on blockchains which promote trust and reduce dependence on conventional financial tools. Crypto transactions are also faster and often cheaper than traditional bank transfers, especially when used internationally. This is made possible because cryptocurrencies lack intermediaries and the fees associated with them. According to the World Bank, international transactions averaged an astonishing 6.3% in 2022, demonstrating the economic nature of crypto in binational transactions.
Many investors also point to cryptocurrencies like Bitcoin as a promising hedge against inflation due to its limited supply of 21 million coins. Theoretically, this allows Bitcoin to be insensitive to inflation, which can take the value of conventional currencies over certain periods.
What are the potential risks associated with cryptocurrencies?
Volatility is synonymous with cryptocurrencies and market fluctuations are common. Significant volatility is often destabilizing for investors and can potentially result in a total loss without careful monitoring. Additionally, cryptocurrencies often fall victim to hacks and cyberattacks which can deal a major blow to investors’ aspirations. Cyberattacks have led to the theft of $2 billion in cryptocurrencies in 2022 worldwide, highlighting the security concerns surrounding these assets. Virtual digital assets (VDAs) like cryptocurrencies currently do not have legal frameworks that regulate them. However, governments around the world are currently working to establish a global framework. This unpredictability can potentially create difficulties for investors and it is essential to remain vigilant about regulatory developments and prepare for changes that may affect the market. Another challenge associated with cryptocurrencies is their slow adoption and limited use in the real world. In countries like India, individuals cannot use cryptocurrencies to purchase products, reducing their value proposition compared to conventional asset classes.
Crucial Factors to Consider Before Investing in Crypto
Before deciding to invest in cryptocurrencies, investors need to think about several things. Understanding their risk tolerance, investment objectives, investment duration and domain knowledge are of paramount importance before investing in VDAs. The fact that cryptocurrencies are a relatively new way of investing and present unique advantages and risks must be taken into account before being influenced by public opinion. The Indian cryptocurrency market is thriving, which means starting from a modest level and cautiously expanding the portfolio allows investors to become proficient and easily learn about market dynamics.
(Attributed to Roshan Aslam, Co-Founder and CEO of GoSats)
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)