I’ll be totally honest here, I’m still desperately in need of cryptocurrency tips. It’s always seemed like some weird and mythical world to me.
Sure, it’s always making headlines with people gaining or losing money, and it’s still hanging on when everyone thought it was a flash in the pan. But what the hell is crypto and is it still making people money in 2021, or is it time to let it go and move on?
To find some answers, we check in with Josh Gilbert, a Market Analyst at the leading social trading platform, eToro.
PEDESTRIAN.TV: For those of us still confused, what is cryptocurrency?
Josh Gilbert: Cryptocurrency is a digital or virtual currency that is decentralised, meaning they’re not controlled by any central authority or government.
One of the early appeals of cryptocurrency was that it offered the opportunity to transfer large amounts of wealth anonymously without government or institutional interference.
Most cryptocurrencies are based on blockchain technology, which is a distributed ledger (put simply, it’s the database that stores the information). In Bitcoin’s case, the blockchain is used, so not a single person or institution has control. Instead, all the users are collectively in control.
PTV: Why would someone invest in cryptocurrency over regular stock?
JG: The lure for investors towards cryptoassets [the umbrella term for any form of cryptocurrency or digital assets] is the high returns and low connection to any other assets.
Investing in crypto is high-risk, but this has come with high rewards in the past. Year to date, Bitcoin has returned 34%, with others returning even more — like Ethereum which returned 209%.
Cryptoassets are also used as part of a diversified portfolio. I would always remind investors that despite the high returns, remember to do your research, understand what you’re investing in and don’t invest more than you can afford to lose.
PTV: Will crypto always be worth investing in?
JG: This entirely depends on the investors time frame and their reasons for investing. You should set goals and have a clear strategy before investing. It can be easy to forget these goals when assets soar in value, but if you invested to make a particular return, try to stick by this.
In some cases, investors are looking to buy Bitcoin as a store of value because they believe in 20 years that the demand will outweigh the supply, and prices will be much higher. On the other hand, some shorter-term investors are looking to take advantage of the volatility.
In my opinion, cryptoassets are a long term investment, with adoption likely to increase over the next ten years.
PTV: What factors should influence your investment choice?
JG: The main factor when investing in any asset is risk, but this is a more important message when investing in crypto due to the asset’s volatility.
Since 2009 we’ve seen Bitcoin drop by 50%, 15 times, showing how volatile the asset can be. Do your research to gain a clearer understanding of the longevity of the asset and how the volatility may affect your investment portfolio.
Understand your timeline and, as I mentioned above, set a clear goal. For example, suppose you need access to liquid capital from your portfolio on short notice. In that case, it might not be the best idea to invest in the extreme market fluctuations that crypto possesses.
In most cases, investors should consider dollar-cost averaging. This strategy can be a good way to avoid the impossible task of attempting to ‘time the market’ and presents a lower risk investment strategy for a high-risk asset.
You will, of course, need to have an understanding of what you think is next for crypto. So keep up to date with the news, particularly around what experts are saying about the industry. Digest as much information as you can as this will enable you to have all the tools to make investment decisions.