Advantages And Disadvantages Of Investing In Cryptocurrency In 2021 And Beyond

Updated: June 17, 2021
by Cristian Morales

If you are thinking of investing any time soon, maybe it is time to look into digital assets. Instead of letting your money get eaten by inflation, you should place it somewhere where it can grow.

Cryptocurrencies belong to digital assets. They are secured by cryptography, and that makes it almost impossible to counterfeit or double-spend.

As a potential digital asset investor, you need to know a lot before you start investing and making serious moves on the market. This includes the different cryptocurrencies and investment strategies, but also all the pros and cons of investing in this type of asset.

Advantages And Disadvantages Of Investing In Cryptocurrency In 2021 And Beyond

There Is A Real Chance You Will Enjoy Great Returns

From 2015 to 2020, the S&P 500 index of large-cap US equities has compounded at an annualized growth rate of 14.5% (in United States dollars with net dividends reinvested).

During the same time period, the price of Bitcoin in USD has compounded at an annualized growth rate of 131.5%.

This means that various cryptocurrencies hold serious growth potential. It’s not easy figuring out what currencies will grow, but managing to spot a good one may pay off over 100%, 200%, or even 300% in a few years.

This makes crypto a better option than starting a savings account with an interest rate since the increase with crypto can be stellar.

Total Transparency

Total Transparency

You can enjoy total transparency if you decide to invest in cryptocurrencies. For example, every single transaction made with Bitcoin is monitored and recorded in a public ledger that is known as the blockchain.

On top of that, every crypto transaction gets verified and cannot be manipulated by scammers or hackers. You won’t have to worry that someone will rip you off or steal your funds from your crypto wallet.

Potential Diversification

Many investors out there cited cryptocurrencies as an alternative hedging instrument to gold in a portfolio context.

For instance, the S&P 500 declined in 17 out of 60 months to end December 2020, while the price of Bitcoin rallied in seven of those.

In the five-year period (until the end of 2020), a portfolio consisting of 10% invested in Bitcoin and 90% in the S&P 500 would have generated compound annual returns of 26.8%.

Access Granted 24/7

Access Granted 24/7

Your digital assets (crypto) are available to you at any time of the day. In other words, access is granted 24/7.

It is possible to make a cryptocurrency transaction whenever you want to, no matter where you are, you just need to have an internet connection.

You can even make transactions with your phone. For instance, Bitcoin became a global form of currency as it is the easiest and fastest means of exchange that can be used across the globe.

However, nowadays, there are other cryptocurrencies that mainly focus on the speed of transactions (ADA, LTC, etc.).

Complete Control

When you hold Bitcoins or other cryptocurrencies, you have complete control over your funds and transactions as everything is safe and anonymous.

Each transaction that is executed will be independent of the individuals’ or parties’ identities. There is no private information that can be made public, which eliminates every chance of fraud and identity theft.

Moreover, as these cryptocurrencies are decentralized, users don’t have to rely on a bank or any other institution in order to make transactions. This is the biggest reason why many globalists and bankers are against cryptocurrencies, so keep that in mind once you start investing.

Growing Usage

More and more people accept and use cryptocurrencies and an increasing number of governments follow the same path.

There are more than enough numbers that confirm this. For instance, Coinbase had seen $145 billion in cryptocurrency merchant transactions in 2019, which is a 600% increase compared to 2018.

According to a Chainalysis report, payment processors saw almost $4 billion worth of Bitcoin activity in 2019.

Additionally, it is notable that there has been a considerable increase in the number of Bitcoin electronic wallets created over the past few years, and there is an increasing number of institutional investors looking to invest in cryptocurrencies.

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High Volatility

Every coin has two sides (pun intended).

Unfortunately, the high volatility of this asset paves the way for large losses. The annualized volatility of the monthly percent change in the price of Bitcoin in US dollars is about 90% as measured over the last five years.

This compares to annualized volatility of the monthly percent changes in the S&P 500 and the gold price of 15.3% and 13.4%, respectively.

As an investor, you should be worried about the range of returns. Consider that the maximum monthly Bitcoin return over the 60 months to end December 2020 was 76.1% and the minimum -37.6%.

All of that points to the fact that the timing of an investment in Bitcoin or other cryptocurrencies will have a significant impact on the returns achieved.

Final Words

There is no doubt that investing in crypto can be attractive and very lucrative.

However, don’t forget that there is also the potential for large losses. Make sure to do additional research and consider all the pros and cons before you actually invest in any cryptocurrency.

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About the author 

Cristian Morales

Freelance writer and graphic designer with a can-do attitude. I became independent after spending 6 years in the hospitality industry and 5 years in banking & finance. I'm an all-rounder guy, open to working with like-minded people.

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