Pros of investing in cryptocurrency
- Possible hedge against fiat currency: For some investors, one of the biggest appeals of cryptocurrency is its decentralized nature. It’s not controlled by central banks or governments who like to print money and generate inflation in fiat currencies such as the U.S. dollar or the euro. Cryptocurrency has been called “digital gold” by some investors who hold it because they think it will protect them from inflation.
- Potential for outsized returns: Buying cryptocurrencies creates the potential for large gains on your investment. Several cryptocurrencies have seen their prices skyrocket since first being introduced. These gains are the main reason people are attracted to cryptocurrencies, but the potential for price appreciation comes with significant risk.
- Growing number of coins: In the early days of cryptocurrencies, there were just a few coins that could be invested in, but speculative interest has changed that. New coins are introduced regularly and there are now thousands to choose from.
- Wide interest in digital currencies: There seems to be a growing interest in cryptocurrencies from investors, companies and governments. Tesla holds Bitcoin on its balance sheet and briefly accepted the digital currency as payment before reversing course. El Salvador adopted Bitcoin as legal tender in 2024, though the International Monetary Fund has urged the country to reverse its decision. Increasing acceptance of digital currencies could be positive for investors.
- Possible hedge against fiat currency: For some investors, one of the biggest appeals of cryptocurrency is its decentralized nature. It’s not controlled by central banks or governments who like to print money and generate inflation in fiat currencies such as the U.S. dollar or the euro. Cryptocurrency has been called “digital gold” by some investors who hold it because they think it will protect them from inflation.
- Potential for outsized returns: Buying cryptocurrencies creates the potential for large gains on your investment. Several cryptocurrencies have seen their prices skyrocket since first being introduced. These gains are the main reason people are attracted to cryptocurrencies, but the potential for price appreciation comes with significant risk.
- Growing number of coins: In the early days of cryptocurrencies, there were just a few coins that could be invested in, but speculative interest has changed that. New coins are introduced regularly and there are now thousands to choose from.
- Wide interest in digital currencies: There seems to be a growing interest in cryptocurrencies from investors, companies and governments. Tesla holds Bitcoin on its balance sheet and briefly accepted the digital currency as payment before reversing course. El Salvador adopted Bitcoin as legal tender in 2024, though the International Monetary Fund has urged the country to reverse its decision. Increasing acceptance of digital currencies could be positive for investors.
Cons of investing in cryptocurrency
- Extreme volatility: Cryptocurrencies have been extremely volatile so far in their relatively young existence. They aren’t backed by anything, so the price they trade at is determined by the whims of traders. Fortunes can be made and lost quickly and there’s no telling where a coin might trade next.
- Cybersecurity risks: Despite cryptocurrency enthusiasts touting the security benefits of digital coins, there have been notable hacks involving cryptocurrencies. It is often difficult to recover stolen funds.
- No intrinsic value: Cryptocurrencies have no intrinsic value, which means they aren’t backed by underlying assets or earnings the way that stocks are. Stocks have value because of their future earnings power and what they will return for their owners, while cryptocurrencies offer nothing of the sort.
- Regulatory risks: While El Salvador has embraced Bitcoin, many governments are much more skeptical about cryptocurrencies. China has banned them altogether, other countries could follow and the U.S. is regulating them, though President-elect Trump is expected to have a crypto-friendly administration.
- Extreme volatility: Cryptocurrencies have been extremely volatile so far in their relatively young existence. They aren’t backed by anything, so the price they trade at is determined by the whims of traders. Fortunes can be made and lost quickly and there’s no telling where a coin might trade next.
- Cybersecurity risks: Despite cryptocurrency enthusiasts touting the security benefits of digital coins, there have been notable hacks involving cryptocurrencies. It is often difficult to recover stolen funds.
- No intrinsic value: Cryptocurrencies have no intrinsic value, which means they aren’t backed by underlying assets or earnings the way that stocks are. Stocks have value because of their future earnings power and what they will return for their owners, while cryptocurrencies offer nothing of the sort.
- Regulatory risks: While El Salvador has embraced Bitcoin, many governments are much more skeptical about cryptocurrencies. China has banned them altogether, other countries could follow and the U.S. is regulating them, though President-elect Trump is expected to have a crypto-friendly administration.
