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Advantages and Disadvantages of Trading Cryptocurrencies [Guide for Beginners]
Over the last several years, the cryptocurrency market has gained legitimacy in the eyes of traders and investors all over the world, as evidenced by the fact that major media outlets like CNBC and Bloomberg have now incorporated Bitcoin and other cryptocurrencies in their regular financial coverage. In addition, a number of high-profile investors, including billionaire Anthony Pompliano, who also co-founded the crypto hedge fund Morgan Creek Digital Assets, have recently endorsed the asset class.
Ivy League universities are another proof that the bitcoin sector has achieved mainstream traction. Yale University’s, Harvard University’s, and the Massachusetts Institute of Technology’s (MIT) endowments have all invested millions of dollars in digital currency-related ventures.
With Bitcoin’s price rising in the first half of 2019, many newbies and long-time users alike have considered the possibility of trading cryptocurrency. After all, cryptocurrencies behave similarly to stocks and other assets in many respects. In the following sections of this post, we’ll look at the advantages and disadvantages of investing in the cryptocurrency market.
Advantages
Secure Store-of-value
Many cryptocurrencies, like Bitcoin, were created with the goal of being usable and even thriving in the absence of governments, financial institutions, and other third-party middlemen. As a result, the asset class has shown to be a highly stable, safe, and reliable store of wealth, earning it the moniker Digital Gold by many. Many cryptocurrency traders now believe that Bitcoin is a superior store of value to some of the world’s most widely used fiat currencies, such as the US dollar and the Chinese yuan.
Bloomberg discovered an inverse association between the values of Bitcoin and the Chinese yuan earlier this year. At the same time, the US Government stated that a stunning 150 per cent would raise tariffs on Chinese imports. Economists believe that Chinese investors reacted to the news by putting their money into Bitcoin, which they regard to be a safer haven asset than gold.
Low Fees
The ability of cryptocurrency to be traded peer-to-peer, that is, without the intervention of a central authority, is its greatest strength. Many digital currencies have low fees since transactions are made directly between users, especially when compared to other financial products. Brokerage, transaction costs, government taxes, delivery charges, regulatory fees, and occasionally even an annual fee for holding an account with the exchange are all fees in the equities markets. While there are exchanges in the crypto market, they are completely optional and offer relatively modest fees as a result of the high level of competition. You may assume that all crypto platforms offer low fees but that’s not the case. However, you can check out a platform like Immediate Edge which offers free access and very minimum fees for starters and experienced traders.
Rather than using exchanges, crypto traders can send Bitcoin and other digital currencies directly to another trader’s wallet for a fraction of the price. LocalBitcoins, for example, provides an escrow service to ensure that both the seller and the buyer follow the terms of the deal. Other markets just lack the technical capability to provide such a low-cost alternative.
Universal Accessibility
The feasibility and availability of cryptocurrencies such as Bitcoin are not exclusive to a single country or region. Anyone with a smartphone and an Internet connection may build their own digital wallet and start trading. As a result, cryptocurrency is the only asset class that everyone can exchange on the planet, regardless of their background, financial situation, or proximity to the financial system.
This is why many cryptocurrency ventures aim to bank the unbanked by offering fee-free transactions and other microfinance services.
Unlike equities and commodities, Cryptocurrencies are traded 24 hours a day, seven days a week. Traders from all over the world can now participate at any time and make investment decisions without having to wait for the market to open or close.
Disadvantages
Relative Immaturity
Bitcoin has only been around for a few years compared to precious metals and other traditional assets. As a result, most of the surrounding infrastructure is underdeveloped, making investing and trade more difficult for non-technical individuals. Around the beginning of 2017, a scalability issue caused a multi-day transaction delay, affecting traders transferring cryptocurrency from personal wallets to exchanges. Phishing attempts and other breaches are becoming more common in the crypto world, so security is another factor to consider.
However, cryptocurrency exchanges have offered a flood of new features for experienced institutional traders and investors, such as custody services and advanced trading tools. While this comes at a cost, it puts the cryptocurrency market on par with the services provided by large financial institutions and stock exchanges.
Risk and Volatility
Any asset base, crypto or otherwise, is certain to involve some level of risk. While stock and commodity prices tend to change slowly, this is not the case with the great majority of digital currencies. Volatility in the crypto market is rather normal because prices are determined by the supply and demand economic concept. Prices can surge in response to unexpected demand, while news of a security breach might cause a cryptocurrency’s value to plummet.
While traders that monitor news and other geopolitical events are routinely able to profit from this volatility, many short-term crypto investors are often intimidated by it. Since trading involves putting a sizable chunk of your personal wealth on the line, there is always an element of risk involved, especially due to the difficulty of accurately forecasting crypto prices.
Last Thoughts
Investing in cryptocurrencies is an extremely new sector. As a result, it’s possible that new potential investors will be leery of it. Although it depends on your objectives, we believe the advantages outweigh the risks.
Several people use cryptocurrencies as a secondary source of income and trade or invest in them. However, just a small percentage of consumers use bitcoin to make purchases at the present point. On the other hand, Crypto has made it clear that it is here to stay. If you are capable of investing, make it a point to learn more about it. You might decide to invest in cryptocurrencies in the future. For you, this could be the ultimate investment opportunity.
