Cryptocurrency is red hot right now. The buzz around this new kind of online currency is higher right now than it’s ever been! Should you be investing in cryptocurrency, or is it just a weird fad that’ll blow over soon? Let’s take a look at this brand-new financial standard and what it could mean for your portfolio.
In short, cryptocurrency is a digital standard of value. It’s not dissimilar from a unit of currency issued by a central bank. Just like every dollar from the Federal Reserve has a serial number, every Bitcoin has a unique ID code. Unlike fiat money, however, cryptocurrency isn’t backed by a government or a central bank.
Instead, the value of crypto is entirely based on investor sentiment. The digital coins are created in a number of ways, but the important thing is that the users all agree that the coins are worth something. Their purported usefulness is entirely based on the assumption that cryptocurrency is going to be the de facto currency of the future.
Some crypto standards are worth quite a lot of money, while others are worth only a few cents per coin. The two most well-known standards, Bitcoin and Ether, are rather valuable. However, their values are also in constant flux: dips of thousands of dollars in value followed by strong rallies aren’t uncommon in the world of crypto trading.
This, coupled with the potential for fraudsters to steal your cryptocurrency, makes some investors hesitant to diversify into the standard. It’s not all bad news, though.
Some enthusiasts liken cryptocurrency to gold, arguing that it’s a strong hedge against the whims of regulators. Crypto has all of the benefits (and drawbacks) of a completely unregulated, decentralized standard. This means that enthusiasts both have no governing body to answer to and no one to turn to if they’re defrauded out of their Bitcoin.
The results are undeniable, however. Over a few short years, cryptocurrency has turned into a major part of the financial world. It’s hard to say that you should avoid the standard altogether: doing so would mean you’ve got no exposure to the potential gains the standards could see in the coming years.
As with most investments, the smart money is on diversification. Adding things like Bitcoin futures to your portfolio could help you to shore up your accounts for the near term. Then, if the standard underperforms, you’ll be able to cut out easily enough that you’re not out too much money. And, if the coin continues winning, so will you!