Munif Ali

Investing In Cryptocurrency And It's 4 Amazing Benefits

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Last month, the finance world was shocked by the collapse of FTX, a once lucrative cryptocurrency exchange service. In the past, it had garnered so much attention and investment that it was valued at $32 billion. Now, within the span of a single year, FTX has become the biggest victim in what financial analysts are calling the “crypto market crash”.

It’s not just services like FTX, either. Popular cryptocurrencies, including Bitcoin, have fallen to their lowest values yet. For example, Bitcoin had been at a record-high $69000 just last year; this time, it’s gone just below $16000. While the hectic spike and drop in cryptocurrency prices aren’t new, it’s been strongly affected by multiple changes in 2022. Possible factors that have led to its sudden fall include the ongoing inflation rate and the war in Ukraine.

For those who have been investing in cryptocurrency, this kind of scenario is a nightmare. Imagine that you invest your money in what others had hailed as “the future”, only to see it drop far below their expectations. To survive any market crash, especially one as dire as this, here’s what you need to know about investing in cryptocurrency.

What is cryptocurrency?

As popular as Bitcoin may be, people might not be sure what it is. They might not have even heard of the word “cryptocurrency” before. It might sound like a fancy term for digital money, but that’s not exactly the case.

You see, a cryptocurrency is a form of digital currency secured by cryptography; through this method, currencies like Bitcoin and Ethereum are nearly impossible to replicate or steal. In other words, you’re looking at one of the most digitally protected currencies in the world.

What makes cryptocurrencies so special is that they are made of decentralized systems, in which a network of computers handles and maintains the money. It’s also known for being a special kind of currency since it’s not issued by the government. Whereas standard bills, like dollars or euros, are controlled by countries worldwide, cryptocurrency is practically independent of all these systems.

However, one other defining aspect of cryptocurrency is that it is an incredibly volatile system. If you’re looking to invest your money here, you’re going to find a confusing and sudden change in fortune. As mentioned earlier, the prices of these cryptocurrencies can make people millionaires within the span of a week, and then plummet to shockingly low prices by the next month. So, if you plan to invest in cryptocurrency, remember that it’s a big gamble.

Why do people invest in cryptocurrency?

While cryptocurrency is still fairly new to the world, it’s become one of the most fascinating investments people can make. Though it’s far from perfect, there’s so much excitement and intrigue at the thought of buying one of these digital coins or cash. Still, you might be wondering why people invest in it at all, especially given the fall of FTX. Here are some reasons why you might invest your money in cryptocurrency.

They want to invest in “the future” of currency.

The benefits

For many people, the idea of digital money is the next step toward the future. Just like how the movies imagined our future to include robots and self-driving cars, financial analysts and experts used to ponder on what it’d be like to have digital money. With the creation of cryptocurrencies, that dream seemed to become a reality.

investing in cryptocurrency virtual reality

It’s also why you might want to invest your money in cryptocurrency at all. There are many businesses that have incorporated Bitcoin and Ethereum payments for their services. Plus, there are already technologies for using bank accounts online or making transactions through an app. Surely, using digital money is the logical way forward, right?

The drawbacks

Remember that as fascinating as cryptocurrency is, it’s still in its infancy. There’s so much we have yet to discover about how these currencies work. We haven’t even discovered how to keep money relatively stable for long periods of time. So, if you want to invest your money in the future, make sure you know what you’re risking first.

They want inflation-free investments.

The benefits

Ideally, because of the complex and digital aspects of cryptocurrencies, inflation should not be a problem. Compared to fiat money around the world, platforms like Binance allow their coins to be stored for long-term use. While the values of these coins may change, they aren’t subject to serious inflation problems as products like gold and silver would.

In addition, cryptocurrencies are capped on mathematical equations and algorithms. This means that the coins aren’t subject to the same rules or guidelines as regular bills or income. It can’t even be taxed by the government unless approved by its owner. Because of this inflation-free protection, and its potential value as a long-term investment, people are more than happy to buy into these currencies.

The drawbacks

Again, it must be stated that these coins aren’t as ironclad as people might think. Yes, it might have multiple safeguards against inflation in different countries. However, as seen by the fall of Bitcoin’s prices, cryptocurrency can be very unstable in value. Don’t assume that because your cash isn’t affected by inflation, it’s a golden prospect.

They want the digital freedom that cryptocurrency transactions have.

The benefits

Compared to traditional banks and their online services, cryptocurrency is quite free and reliable. Many experts have noted that these digital coins are censorship-resistant. In other words, it can be sent at any time to any person without issue or delay. Plus, given the cryptography measures taken, you’re most likely going to get the exact value you want. It’s highly unlikely that you’ll be given false numbers or counterfeit cash for your coins.

The drawbacks

Banks have a very good track record in detecting scams or refunding people when transactions go bad. For example, a person who double-sends their cash by accident can at least work out some deal to regain the money. Cryptocurrency might not always have those same measures. Plus, these digital coins often require heavy security measures, which can still be bypassed by hackers and scammers. Again, it might be an interesting platform to invest your money in, but it’s not a perfect answer. Like all currencies, digital coins have their own setbacks and problems to deal with.

investing in cryptocurrency more

They want to join the social bandwagon.

The benefits

There’s a reason why the popularity of Bitcoin and other cryptocurrencies leads to more investments and users. Digital currencies are pretty much one of the most interesting trends you’ll find in this decade. It’s a topical thing, and the more people talk about it, the more interesting it seems. 

Even when financial gurus like Warren Buffett and tech gurus like Bill Gates question the practicality of cryptocurrency, it garners enough attention to get noticed.

It might also be why you might invest your money in these digital coins. The idea that multiple investors and financial experts are exploring cryptocurrency might sound like a smart move. You may feel like you’re missing out if you’re not on the same page as them.

Plus, it might feel like a confidence boost to go and join a trend that becomes the standard by 2030. Like how iPhone users felt when the world began to switch to smart phones, you might want to be ahead of the game before everyone starts to jump in.

The drawbacks

Is cryptocurrency a popular thing? Yes, even when it had gone through some of the toughest and most shocking value drops in history. Do people still invest in it? Many still do, and they are more than willing to try and wait out the slump for another rise. So, does that mean it’s smart to join the bandwagon?

The answer isn’t a simple yes or no. Following a trend isn’t always a guarantee that it’ll be as useful in the next decade. If you want to invest your money in cryptocurrency, you have all the right to do so. However, don’t be so hasty as to think that you’re ten steps ahead of everyone else. In the current day, other investments like savings accounts and credit cards are still as useful as they have ever been. So, before you join the club, check yourself to see how far you’re willing to spend for it.

How do I get through a cryptocurrency crash?

Now that you know why people invest in cryptocurrency, and what problems they might encounter, it’s important to have a fallback plan. As evident in the most recent crash, cryptocurrency isn’t a get-rich-quick scheme. It might become highly valuable in the future, but you need to get through this current slump and future crashes to make the most of your cash.

 If you want to invest your money in cryptocurrency, you need to invest in the right measures to stay safe during these valleys. Here’s how you can survive the next crypto crash and avoid ruining your finances.

1. Use only expendable money for cryptocurrency.

When it comes to investing in anything, especially things as volatile as cryptocurrency, you should always give the money you’re willing to lose. While the digital coins can work in your favor, there’s no guarantee that they’ll lead to a big sum. You might want to be one of those famous news stories of sudden millionaires, but that might also never happen.

start investing in cryptocurrency

To be safe, remember to invest your money if you’re willing to give it up if things turn bad. Use only as much money as you’re ready to lose. Never try to go beyond your means, or else you’ll risk your savings and your other investments.

2. Remember to maintain your existing investments.

Cryptocurrency might be one of the most lucrative investments you make. That said, it shouldn’t be your primary focus or source of money. A good investor doesn’t stick to one option; instead, that investor would make sure to diversify their stocks and shares wherever possible. If you follow this tactic, you’ll be able to keep your money safe enough to stay afloat even during a crypto crash.

For example, you can look into buying index funds with your cash to stay on top of the stock trade. You could also explore EFTs, bonds, and mutual funds to help bolster your portfolio. There are many options for you to invest your money in. All you have to do is explore and see what might fit you best.

3. Make sure to build an emergency fund.

One of the best ways to prepare for a disaster is to have a backup plan. In this case, the best way to avoid suffering financial losses is with a backup budget. For those who don’t know, an emergency fund is a certain amount of cash that you keep specifically for the worst-case scenarios. Usually, these problems would cover car accidents, hospital visits, house fires, and other unexpected tragedies.

However, you can also use the emergency fund to recoup from a crypto crash. Ideally, you should save enough money to stay afloat for at least three months or more. With this method, you can earn your losses back in time to make new trades or restart your cryptocurrency plans. Just remember that an emergency fund should only be used for emergencies. Don’t spend that cash on your own needs unless you absolutely have to.

4. Stay calm and think about your approach to cryptocurrency.

While a cryptocurrency crash can be frightening, you shouldn’t let your emotions get the best of you. Some people might immediately be panicking and worrying that their entire fortune is lost. Don’t be so quick as to give up or run away from cryptocurrency altogether. While it is not a stable system, there might still be some use for it.

If you want to know if you should continue to invest your money on digital coins, consider doing research and reflecting on cryptocurrency. There are as many investors  wary of cryptocurrency as there are supporters of it. For example, Charlie Munger, the vice chairman of Berkshire Hathaway, felt that it was a good move for China to ban cryptocurrency altogether. 

Whether you agree or not is up to you. What is important is that you take this time to reflect on how the crypto market is. Does it feel like an investment you want to try and keep alive? Or would you rather back out? The choice is ultimately up to you.

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