What are the pros and cons of investing in cryptocurrencies?

05 August, 2022Jimmy White
jimmy white

Jimmy White was highly commended, in the 18-19 age group in this year’s Young Financial Journalist competition. His article explores the benefits and downsides of cryptocurrencies. 

In the UK, 6.1% of Brits claim to currently own some form of cryptocurrency. But with the growth in demand and awareness for the currencies, some people are going into the market with little knowledge of the pros or cons, which can be naive in a highly competitive and dynamic market.  

The disadvantages of crypto currencies 

A big disadvantage of crypto currencies is that they are a decentralised currency, meaning that crypto investments are unprotected resulting in them being vulnerable to fraud.  

Due to the rise in awareness and demand for the currencies, this may also affect some new, naive investors due to there being many scams in the market through ‘initial coin offerings’ (ICOs) due to lack of government regulation.  

These ICOs are banking on the uninformed and inexperienced traders to buy some of their currency, due to the realistic details of the currency. This shows when buying crypto currencies, the investor must always be aware of what they are buying and whether it can be trusted or not.  

Another result of the lack of regulations on the currency is how crypto impacts the environment. Bitcoin mining created an estimate of 40 billion carbon emissions in the USA, showing the mining of bitcoin and crypto to possibly be unethical due to the effect that it is causing the environment.  

Many investors may not care about these negative externalities; however, this may be a con of investing in crypto for the people who care about the environment. 

Social media influencers and crypto currencies 

Another con of crypto currencies I want to point out is that many people often find themselves following the advice of a social media influencer.  

This is a con since crypto is a highly volatile currency showing there to be high risk.  

This may lead inexperienced investors of crypto to put a lot of money on a certain crypto-currency due to someone with a lot of followers telling them to, who may have no idea what they are talking about. But people tend to trust these people with a strong follower background.  

This strengthens the point that crypto currencies are a speculative asset and even if an investor gets lucky in the short run, they most likely won’t in the long run as you chase to make the money back you lost.  

These influencers who claim to be experts no more than the average person, so they may also be attempting to create hype around the currency so they can make money.  

Warren Buffet sums this up when he says, “You’re just hoping the next guy pays more. And you only feel you’ll find the next guy to pay more if he thinks he’s going to find someone that’s going to pay more.”  

Ultimately showing influencers may not be trying to help you, but instead make money for themselves through trying to drive demand and price up. 

The advantages of crypto currencies 

However, investing in crypto currencies isn’t all bad, since with high risk comes high reward and due to the high return potential, that can come with an extremely volatile currency, fluctuations happen all the time.  

This may seem like a con due to the unpredictability, but this is one of cryptos biggest advantages since it is a way in which you can make high returns quickly. With the biggest currency in Bitcoin expected to keep rising to possibly $300000 by 2025, the potential to make some high returns is enormous.  

You may have to get lucky or do lots of time-consuming research, but at the end of it you will likely be in a position where you can spot trends and know exactly when to invest to achieve these high returns. 

Another big benefit of investing in crypto currencies is the accessibility that comes with having the currency in your wallet.  

Due to crypto currencies increasing in demand and influence as each day goes by, more and more companies and systems will start to accept the currencies.  

This is a huge benefit since the currency is the same all around the world, meaning that you won’t have to go through the hassle of exchanging currencies as the wallet virtually holds the currencies everywhere you go. So, the value of the currency is worth the same everywhere.  

This ultimately makes crypto very accessible when coming down to holding the currency.  

Overall, investing in crypto currencies is a high risk but with that comes high reward. This means if someone has the time too properly research into it and knows how to spot potential scams, and doesn’t mind about the effects to the environment, then investing in crypto currencies could have the potential for high returns if you know what you are doing.