Hello Friends 👋
Yesterday we discussed “What Is Crypto” and “What We Can Do With Crypto”. Now let’s understand more about safety and the future before we jump into the buy, sell and invest part… Hold your horses, please :-) :-)
Is Crypto Safe?
The blockchain technology backing cryptocurrency is inherently secure, thanks to the decentralized — and public — nature of distributed ledger technology and the encryption process every transaction undergoes.
But that doesn’t mean it’s completely secure in the same way most people consider the U.S. dollar or other established currencies to be secure. Since cryptocurrency isn’t backed by any governmental authority, it doesn’t have the same protections as many standard currencies throughout the world.
Unlike the money, you save in a bank insured by the Federal Deposit Insurance Corporation (FDIC), “If a virtual currency company fails – and many have – the government will not cover the loss,” the Consumer Financial Protection Bureau warned in a 2014 notice about cryptocurrency (its most recent guidance).
The CFPB names more specific risks that consumers should be prepared for, including volatile exchange rates, potential high fees on exchange platforms, and fraud risks. If your funds are lost or stolen, they can be especially difficult to recover, thanks to the decentralized nature of blockchain and lack of any governmental oversight.
And, importantly, just because cryptocurrency is secure does not make it safe. As much as some of the recent popularity of cryptocurrency is driven by investors’ belief in its value, that value is still based on speculation. For those who invest in crypto, it will be among the riskiest investments they make.
“I believe everyone should have a diversified portfolio,” says Daniel Johnson, a financial advisor and founder of RE|Focus Financial Planning in Asheville, North Carolina. Any investment you make should be appropriately weighted against the rest of your portfolio as well as the overall market. Just as you wouldn’t invest all your money in one company, it’s unwise to put every dollar you have into crypto.
What Does the Future Hold for Cryptocurrency?
Bitcoin and some other cryptocurrencies’ values have skyrocketed in recent years. Bitcoin’s price has more than doubled in 2021, and Ethereum has more than quadrupled in value this year.
But whether that growth is sustainable, and what it means long-term, is still in question. “This crypto, blockchain technology, the public interest in it right now is being driven by a kind of speculative fever,” says Dr. Richard Smith, executive director of the Foundation for the Study of Cycles, a nonprofit organization dedicated to studying recurring patterns throughout economies and cultures.
Still, an increasing number of big, powerful players are validating crypto’s potential.
“Every single day, the concept that it could be worth something, it could be a store of value is being continually approved by more large, powerful entities,” Johnson says, pointing to established financial institutions holding digital currencies and large corporations adding them to their corporate balance sheets. “The idea that it’s actually worth something is continuing to grow as adoption and acceptance continue to grow as well.”
Ultimately, the future of cryptocurrencies — their value, security, and staying power — is still up in the air. But the experts we spoke to believe owning some crypto could create value over time. Whatever your interest or motivation, experts stress the importance of making sure you understand the unique volatility and risk factors of cryptocurrency before investing.
“I think it’s really important to keep your eyes open,” Johnson says. “Don’t get the FOMO at a fever, because it’s very volatile. No one should invest anything that they can’t afford to lose, and that’s the same advice I give for any kind of investment.”
If you want to share anything or have any suggestions/questions, please leave them in the comments!
That’s it for today :-)
Hope each of you has a great start to your day. I’ll talk to everyone tomorrow.
— Amit
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