When a new cryptocurrency has its ICO (initial coin offering) it is a big gamble; they are like stocks and nobody knows if the value is going to go up and down. Cryptocurrencies have the potential to create huge returns on your investment, but they are also volatile and come with a very large risk.
Although many people have been talking about the risks associated with cryptocurrency for some time, major financial institutions such as JPMorgan and Goldman Sachs are beginning to seriously consider investing in them.
Whether you have a huge amount of cash or a little amount of cash, cryptocurrency is certainly work looking into as a possible investment. There are some pros and cons associated with cryptocurrencies, and we are going to consider them here.
Pro #1 – Massive Potential for RoI
One of the market’s biggest success stories has been Bitcoin. If you bought $1,000 worth of Bitcoin in 2013, it would be worth over $400,000 today! Recent ICOs have created a massive return on investment in a short amount of time. For example, Stratis raised $600,000 with their June 2016 ICO and the price has since risen by over 50%. Spectrecoin raised $15,000 in January of 2017 and its value has since risen over 10,000%!
Pro #2 – Increased Liquidity
When an ICO is released, a cryptocurrency can build a solid enough network and therefore investors immediately have a huge amount of liquidity and can sell their coins for dollars almost instantly. Compared to equity in a business, in-order to release equity and earn money you need to find a wilful buyer or wait for an IPO to occur.
Pro #3 – Clear Directions
The biggest advantage in investing in cryptocurrency as opposed to traditional means is that business start-ups often lack a crystal clear direction and need to overcome initial speedbumps; the company will change drastically before going public. With cryptocurrency, when you invest you know exactly what you are getting and, as such, you can better evaluate the product market and help determine your investment.
Con #1 – Volatility
When compared with traditional investments such as in the stock market, cryptocurrency ICOs are far more volatile. Because of the potential of hacking or other incidents, investors have a risk of losing all of their investment immediately if one of these incidents occur. Although these are rare, major drops in a cryptocurrency’s value are not uncommon and they fluctuate rapidly.
Con #2 – Resource Shortages
If a cryptocurrency does not raise enough money at their ICO, the doors to that cryptocurrency immediately slam shut and can be fatal. Many ICOs begin with a pre-ICO funding round so that they have the resources in place and can create a demand for the currency.
Con #3 – Potential for Mismanagement
Every cryptocurrency is a start-up and has a team of founders running it. But, in-order for the currency to mature from ICO to mass-market, it needs a team behind it who are solid and know how to manage it. Before choosing to invest, make sure you look at the founding team’s background and decide for yourself whether or not they can be trusted with your money!
Although cryptocurrency can be a powerful investment strategy, it can also be disastrous if you do not do it properly. Before investing in any cryptocurrency, do your research and ensure that it is something worth investing in which is safe, properly managed and looks like it is destined to be a strong player in the market.
ICOs are confusing and – like IPOs – they are unpredictable. Many cryptocurrencies find great success after their ICOs and see their value increase by huge amounts, but this is not guaranteed and you should act with a degree of caution.