Cryptocurrency News: Should You Invest in Cryptocurrency? Benefits and Risks to Consider Before Investing

The growing attraction of cryptocurrency throughout the world has had a similar impact on Indians as well. According to NasscomCryptocurrency investors have witnessed a significant growth of 1,100% between 2022 and 2023. This remarkable transformation is evidence of a growing interest in the sphere among the Indian population, but it brings with it a critical question: should individuals who have not participated in the recent cryptocurrency growth consider investing in cryptocurrency? Potential investors must research the potential advantages and disadvantages associated with investing in cryptocurrency before deciding to jump in. Some of these assets intrigue investors based on the mission statement of the developers, while alternative investors prefer to speculate on the price action and volatility of their favorite digital assets. Investing in cryptocurrency is often intricate, but all 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 cryptocurrencies?

The first advantage of cryptocurrency investmentWhat comes to mind is the significant growth potential. Bitcoin, the largest cryptocurrency globally, highlights this potential with its impressive returns over the years. Investors should keep in mind that past returns do not guarantee future returns, but in 2021, Bitcoin rose by over 60%, demonstrating the possibility of serious returns. Meanwhile, in 2022, it fell by over 70%. Since then, Bitcoin has increased in value by almost 49.2% through 2024. This highlights the inherent volatility associated with this particular asset class.

Cryptocurrencies are part of decentralized networks, which means they often offer autonomy and greater transparency. Transactions of these assets are recorded on blockchains which promote trust and reduce dependence on conventional financial instruments. Cryptocurrency transactions are also faster and often cheaper than traditional bank transfers, especially when used internationally. This is made possible by the fact that cryptocurrencies have no intermediaries and fees associated with them. According to the World Bank, international transactions on average were a staggering 6.3% in 2022, which demonstrates the low-cost nature of cryptocurrencies in binary 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 immune to inflation, which can cause the value of conventional currencies to fall at certain times.

What are the potential risks associated with cryptocurrencies?

Volatility is synonymous with cryptocurrencies and market fluctuations are common. Significant volatility is often unsettling for investors and has the potential to record a complete loss without meticulous supervision. Moreover, cryptocurrencies often fall victim to hacking and cyber attacks that can deal a serious blow to investors’ aspirations. Cyber ​​attacks led to the theft of $2 billion in cryptocurrencies in 2022 worldwide, highlighting the security concerns related to these activities.

Virtual digital assets (VDAs) such as cryptocurrencies do not currently have legal frameworks regulating them. However, governments around the world are currently working to establish a global framework. This unpredictability has the potential to create difficulties for investors and it is crucial to remain vigilant about regulatory developments and be ready for changes that may impact the market.

Another challenge associated with cryptocurrencies is their slow adoption and limited real-world use. In countries like India, individuals cannot use cryptocurrencies to purchase products, which reduces their value proposition compared to conventional asset classes.

Crucial Factors to Consider Before Investing in Cryptocurrencies

Before deciding to invest in cryptocurrencies, investors need to think about several things. Understanding their risk tolerance, investment goals, investment duration, and industry knowledge are of utmost importance before investing in VDA. The fact that cryptocurrencies are a relatively new investment modality and have unique advantages and risks should be considered before being influenced by public opinion. The Indian cryptocurrency market is thriving, which means that starting from a modest position and cautiously expanding the portfolio allows investors to become knowledgeable and discover the dynamics of the market with ease.

(Credited to Roshan Aslam, Co-Founder & CEO of GoSats)
(Disclaimer: Recommendations, suggestions, opinions and views provided by experts are personal. They do not represent the views of the Economic Times)

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(Disclaimer: The opinions expressed in this column are those of the author. The facts and opinions expressed here do not reflect the opinions of www.economictimes.com)

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