Is Crypto a Safe Investment?
Jan 16, 2025Investing in crypto is a hot topic especially during bull runs, drawing both excitement and skepticism. As digital assets gain traction, understanding crypto risk and security becomes crucial for potential investors. Here we explore whether cryptocurrency is a good investment, how it compares to traditional stocks, and why it’s been thriving in recent times. As you delve in, it's essential to weigh cryptocurrency risks and benefits carefully.
Is crypto a good investment?
Cryptocurrency presents unique opportunities and challenges for investors. One of the most pressing questions is when to buy cryptocurrency and when to sell. The market is notoriously volatile, with prices fluctuating dramatically within short time frames. For instance, Bitcoin reached nearly $65,000 in late 2021 but dropped to just over $20,000 a year later, which is a clear example of how fast you can lose real money with crypto investments.
When the COVID19 pandemic hit in March 2020, Bitcoin plunged about 50% from roughly $8,000 to $4,000 in two days. Is this a good or bad thing? It all depends on your perspective and your outlook as an investor. If you bought Bitcoin on March 12, 2020, for $8,000 and held it through the end of 2024 you would have experienced another all-time-high of $108,000. It would be hard to find another investment like Bitcoin, boasting a 13.5X return in four and half years.
Key Takeway
You can’t look at crypto prices and volatility in isolation. Investment success is a direct result of your time horizon, risk appetite and conviction. Short-term thinkers usually get the short end of the stick. Long-term thinking typically wins the day.
Crypto success requires education; there is no other short cut. You should always do your own research (DYOR) and have a clear strategy regarding when to enter or exit positions to maximize gains or minimize losses.
Are stocks more safe than crypto?
When comparing crypto to traditional stocks, many wonder about the relationship between cryptocurrency and the stock market. Over time crypto and stocks have become more correlated because investors move their money to bonds and cash, for example, when they think crypto and stocks have become riskier. From this macro point of view, crypto and stocks end up the same risk category. Investor behavior is essentially asset agnostic and all assets live within one big financial bucket. Crypto does not live in a separate financial ecosystem.
So, is crypto riskier than stocks?
The answer once again depends on individual risk tolerance. Crypto has all the normal risks in traditional finance (TradFi) but also has an entirely new realm of risk that didn’t exist before. Volatility is a normal market phenomenon even though it can be far more extreme in crypto. All assets have a set of risks—not a single risk—so you could get different answers depending on who you ask regarding whether crypto is riskier than stocks. Michael Saylor, MicroStrategy Chairman, will tell you that Bitcoin is the lowest risk asset while other people will tell you the opposite. You have to learn crypto and find out for yourself.
Related: What Is the Biggest Risk in Crypto?
Why is crypto doing so well?
The decentralized nature of crypto appeals to those seeking financial autonomy away from traditional banking systems. You can choose to own and control your own assets without intermediaries. Additionally, the potential for high returns has attracted many investors looking for alternative investment opportunities.
Moreover, blockchains and smart contracts have opened the door to programmable money, reinforcing crypto as a legitimate asset class. Governments and institutions are adopting Bitcoin and other crypto into their treasuries as a store of value and hedge against inflation.
Is 100 enough for crypto?
For those contemplating how much to invest in crypto per month for long-term gains, starting with $100 can be a reasonable approach. You’ve got to start somewhere so you can’t go wrong with $100. As you become more experienced you can start to invest more.
Invest smaller amounts regularly by using dollar-cost averaging. By spreading investments over time rather than making a lump-sum purchase, investors lower their cost basis over the long term. Determining how much to invest should align with individual financial goals and risk tolerance and the advice of your advisor.
Key Takeaway
You’ve got to get in the game but you also have to get educated. Remember, time in the market is always better than timing the market.
