Is Cryptocurrency a Good Investment?

By Anders Bylund

It’s possible to get filthy rich by investing in cryptocurrency in 2022 — but you could also lose all of your money. Investing in crypto assets is risky but also potentially extremely profitable.

Cryptocurrency is a good investment if you want to gain direct exposure to the demand for digital currency. A safer but potentially less lucrative alternative is buying the stocks of companies with exposure to cryptocurrency.

Let’s examine the pros and cons of investing in cryptocurrency.

Is cryptocurrency safe?

Several factors make cryptocurrency a not entirely safe investment. However, other signs are emerging that cryptocurrency is here to stay.

Cryptocurrency risks

Cryptocurrency exchanges, more so than stock exchanges, are vulnerable to being hacked and becoming targets of other criminal activity. Security breaches have led to sizable losses for investors who have had their digital currencies stolen, spurring many exchanges and third-party insurers to begin offering protection against hacks. 

Safely storing cryptocurrencies is also more difficult than owning stocks or bonds. Cryptocurrency exchanges such as Coinbase (NASDAQ:COIN) make it fairly easy to buy and sell crypto assets such as Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH), but many people don’t like to keep their digital assets on exchanges due to the risks of allowing any company to control access to their assets.

Storing cryptocurrency on a centralized exchange means you don’t have full control over your assets. An exchange could freeze your assets based on a government request, or the exchange could go bankrupt and you’d have no recourse to recover your money.

Some cryptocurrency owners prefer offline “cold storage” options such as hardware wallets, but cold storage comes with its own set of challenges. The biggest is the risk of losing your private key; without a key, it’s impossible to access your cryptocurrency.

There’s also no guarantee that a crypto project you invest in will succeed. Competition is fierce among thousands of blockchain projects, and many projects are no more than scams. Only a small percentage of cryptocurrency projects will ultimately flourish.

Regulators may also crack down on the entire crypto industry, especially if governments view cryptocurrencies as a threat rather than an innovative technology.

The cutting-edge technology elements of cryptocurrency also increase the risks for investors. Much of the tech is still being developed and is not yet extensively proven in real-world scenarios.

Cryptocurrency adoption

Despite the risks, cryptocurrencies and the blockchain industry are growing stronger. Much-needed financial infrastructure is being built, and investors are increasingly able to access institutional-grade custody services. Professional and individual investors are gradually receiving the tools they need to manage and safeguard their crypto assets.

Crypto futures markets are being established, and many companies are gaining direct exposure to the cryptocurrency sector. Financial giants such as Block (NYSE:SQ) and PayPal (NASDAQ:PYPL) are making it easier to buy and sell cryptocurrency on their popular platforms. Other companies, including Block, have poured hundreds of millions of dollars into Bitcoin and other digital assets. Tesla (NASDAQ:TSLA) purchased $1.5 billion worth of Bitcoin in early 2021. By February 2022, the electric vehicle maker reported that it held almost $2 billion of the cryptocurrency. MicroStrategy (NASDAQ:MSTR) — a business intelligence software company — has been accumulating Bitcoin since 2020. It held $5.7 billion in the cryptocurrency by the end of 2021 and said it plans to buy more with excess cash generated from operations.

Although other factors still affect the riskiness of cryptocurrency, the increasing pace of adoption is a sign of a maturing industry. Individual investors and companies are seeking to gain direct exposure to cryptocurrency, considering it safe enough for investing large sums of money.

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