Why Crypto Is So Volatile
Crypto is worth what people are willing to pay for it.
This means that the price of crypto-assets can fluctuate at extreme levels based solely on market speculation. Factors that can influence the price of crypto include:
- public announcements
- the actions of individuals who hold large amounts of a crypto or who influence the price through social media
The Best Cryptocurrency To Invest In
Although it’s great that you have thousands of digital tokens to choose from, knowing which cryptocurrency to invest in can be a cumbersome and challenging process.
With that said, if this is your first time investing in cryptocurrency – you might want to consider some of the solid projects discussed below.
Why Has Bitcoin Dropped
The price of bitcoin and several other leading cryptocurrencies have been on a downward trajectory in 2022.
Rising inflation and interest rates have caused cryptocurrency to fall along with stocks and shares as investors dial down the level of risk they are taking on.
In June, the price of bitcoin fell below $20,000 and has remained around that level since then, according to data from Coinbase*. Thats a long way from the all-time high of $69,000 seen in November.
The recent turmoil has been caused by:
- Uncertainty around rising interest rates in the US and UK, causing a sell-off in risky assets
- A cost of living crisis caused by rising inflation means that investors have less disposable income to spend on buying bitcoin and other cryptocurrencies
- China making cryptocurrency transactions illegal
- Suggestions that Russia could ban cryptocurrency trading and mining, causing prices to plummet
- There have also been threats of further regulation for cryptocurrency investments in the future
We go into more detail about the causes of the crypto crash.
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How To Invest In Blockchain
Blockchain is often associated with cryptocurrency, but its a technology that stands on its own two legs. It might be a good investment option in its own right.
Several large technology companies run blockchain operations, such as IBM, Oracle Corp., and Visa. You might consider purchasing individual stocks in these companies, or you could purchase exchange-traded funds that deal exclusively with blockchain-related companies. Some viable ETFs include:
Reality Shares Nasdaq NexGen Economy ETF
Amplify Transformational Data Sharing ETF
Innovation Shares NextGen Protocol ETF
These ETFs have performed very well over the past year and have generated good returns. The blockchain sector, as a whole, has outperformed the market.
Many investors are wary about investing in blockchain because theyre afraid of the volatility associated with cryptocurrency. But its important to know that investing in companies that run a blockchain is not the same thing as investing in cryptocurrency. Investing in the stock market is less risky than investing in crypto.
What Are The Benefits Of Dca
DCA can be an effective way to own crypto without the notoriously difficult work of timing the market or the risk of unwittingly using all of your funds to invest a lump sum at a peak.
The key is choosing an amount thats affordable and investing regularly, no matter the price of an asset. This has the potential to average out the cost of purchases over time and reduce the overall impact of a sudden drop in prices on any given purchase. And if prices do fall, DCA investors can continue to buy, as scheduled, with the potential to earn returns as prices recover.
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Understand What Youre Investing In
As you would for any investment, understand exactly what youre investing in. If youre buying stocks, its important to read the prospectus and analyze the companies thoroughly. Plan to do the same with any cryptocurrencies, since there are literally thousands of them, they all function differently and new ones are being created every day. You need to understand the investment case for each trade.
In the case of many cryptocurrencies, theyre backed by nothing at all, neither hard assets nor cash flow. Thats the case for Bitcoin, for example, where investors rely exclusively on someone paying more for the asset than they paid for it. In other words, unlike stock, where a company can grow its profits and drive returns for you that way, many crypto assets must rely on the market becoming more optimistic and bullish for you to profit.
Some of the most popular coins include Ethereum, Dogecoin, Cardano and XRP. Solana has been another massively successful coin as well. So before investing, understand the potential upside and downside. If your financial investment is not backed by an asset or cash flow, it could end up being worth nothing.
Can Bitcoin Be Used As A Hedge Against Inflation
Because the value of Bitcoin is currently not tied to the value of a basket of goods or services, its value as an inflation hedge is a matter of speculation and is unpredictable. Throughout much of 2021 and 2022, Bitcoin experienced both sharp rallies and sharp price declines even though inflation data consistently ticked higher. Whether Bitcoin will prove to be an effective inflation hedge in the long run is yet to be determined.
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How To Invest In Cryptocurrency
Although cryptocurrency has only been around for a short time, it has expanded into a wide, convoluted universe that can be difficult to understand for the uninitiated. But with Bitcoin and other cryptocurrencies seeing wild fluctuations in price, theres an opportunity for big gains, if you can stomach the risk. Digital platforms like Coinbase and Robinhood have made it significantly easier for people to invest in popular cryptocurrencies like Bitcoin. However, the process is still slightly more complex than acquiring a traditional currency. A financial advisor can help you create a financial plan to help you reach your crypto investment goals.
Earn Crypto For Free Through Learning And Mining
As mentioned, you can actually earn a free trickle of crypto just by learning about crypto on sites like Coinbase with its Earn program. For example, you can earn $2 in Stellar just by watching a two minute video:
If you have a powerful computer with a gaming-capable graphics card, you can also mine crypto for free. Mining is the act of leasing your computers processing power to the blockchain and receiving a trickle of crypto in return. I wrote a guide on how how to start mining Bitcoin in 60 seconds.
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What Is The Sec’s Take On Cryptocurrencies
The Securities and Exchange Commission generally has been skeptical of cryptocurrencies, with chairs expressing concern that the product is too volatile, that investor protections are inadequate, and that regulations are insufficient, though current SEC Chair Gary Gensler has stated on several occasions that he had no intention of attempting to outlaw them. The agency has rejected multiple applications for exchange-traded funds that invest directly in Bitcoin over the last several years.
In August 2021, SEC Chair Gary Gensler said that he was open to the idea of ETFs that invested in cryptocurrency futures, but not those that invested in the spot markets, because the futures markets are already regulated by the Commodity Futures Trading Commission. In October 2021 the first two Bitcoin futures ETFsthe ProShares Bitcoin Strategy ETF and the Valkyrie Bitcoin Strategy ETF were approved and launched. While a few others have followed, they are all limited to Bitcoin and Ethereum, as those are the only two cryptocurrencies for which an active futures market is currently established.
What Are The Risks Of Cryptocurrency Investments
Cryptocurrency is a highly volatile investment wherein you might make high returns but risk losing everything. In addition to this, there is an increase in cryptocurrency scams and fraud, leading to an even more significant loss.
Many firms might promise investors a high return from investing in cryptocurrency while such risks are minimized. This is an exaggerated promise of high returns, which, most of the time, returns void.
Currently, there are little to no regulations in the cryptocurrency industry, which creates a domino effect of problems, including more competition, that is not regulated in blockchain projects. There is the potential that if regulated by government officials, that cryptocurrency might be seen as a threat and not innovative technology.
Lastly, the cutting-edge technology used in cryptocurrency development and sales can pose a risk for investors as much of the technology is still being developed and has not yet been extensively proven within real-world situations. The threat of regulation is the single largest risk facing many cryptocurrencies.
This is why the founders of the Bitcode Method suggest that many security protocols on different trading platforms should be analyzed and assessed before purchasing cryptocurrency.
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The 11 Best Cryptocurrencies To Buy
Going forward, I will describe each coin, its purpose, team, liquidity, price volatility, and other metrics.
In the end, you will have a solid understanding, so that you can decide for yourself which is the best crypto to buy in 2022.
I will start with popular, well-known cryptocurrencies. Ideal for beginners.
Then, I will move on to some more advanced coins.
These coins may generate more profits, but they require you to know a bit more about them.
Plus, they are likely more volatile than the first coins on my list.
If youve already invested in top cryptocurrencies offered on platforms like Coinbase and want to expand your portfolio, then the coins at the bottom of my list might be the best crypto to invest in.
Companies Are Providing More Support For Crypto
In October 2020, PayPal launched a new service that made it possible for their account holders to buy, sell, or hold cryptocurrency, or to use it to buy stuff at 26 million different merchants. Square also invested $50 million into Bitcoin last year and JPMorgan Chase even announced their own cryptocurrency called the JPM Coin.
Even though more and more companies and people are accepting crypto as payment and starting to support it, investing in crypto is still highly speculative and not for the faint of heart. Remember that Bitcoin surged past $15,000 in January 2018 only to dip to around $3000 in December 2018. As of August 2022, Bitcoin is hovering around $20,000 but that doesnt mean it wont be $5,000 tomorrow. Dont invest money you arent willing to lose.
If youre willing to take the risk, two popular platforms that I personally use to trade cryptocurrencies are Coinbase and Robinhood. Coinbase will actually pay you around $30 in cryptocurrency just to learn about it! Use my link to earn $10 worth of Bitcoin when you buy $100 worth of crypto. You can also invest in cryptocurrency with the popular brokerages such as Robinhood and WeBull.
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A Better Way To Invest
Bottom line? The road to building wealth is slow and steady, and there are still way too many unknowns when it comes to cryptocurrency. Could crypto become a more legit way to invest later on down the road? Sure. But as things stand today, just say no.
Get-rich-quick schemes are just thatschemes. Dont risk it and pour all your hopes, dreams and money into them. Instead, sit down with a SmartVestor who knows what theyre doing. Let them walk you through a solid strategy for investing that doesnt involve trying to build wealth through risky investments like crypto. And dont knock that 401, folks. Its the number 1 wealth-building tool of millionaires!
About the author
Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.Learn More.
Is Bitcoin A Good Inflation Hedge
Investment pros have been talking a lot about digital currency as a way for investors to hedge against inflation.
When inflation rises, as it is doing at the moment, the value of your cash falls. As the years pass, we can buy fewer goods and services with the money in our bank accounts.
Investment options touted as a hedge government bonds or gold, for example tend to either:
- Keep more of their value than cash over the long term
- Or they tend not to be affected by declines in other parts of the economy
The first of these potential advantages could also be applied to the stock markets and, history suggests, to crypto assets such as bitcoin. Thats why so much long-term investment advice is focused on moving cash out of our bank accounts and into stocks and shares that could appreciate over time.
Baked into the bitcoin code is the promise that no more than 21 million units of bitcoin will ever be created. So instead of being an inflationary currency like sterling or dollars, some experts argue bitcoin is the opposite: it is deflationary, increasing in value with the passing of time.
Of course, the deflationary argument in favour of bitcoin falls down if governments decide to regulate specifically against it. India, for example, has proposed a ban on cryptocurrency trading, suggesting it will impose fines on anyone caught holding onto digital assets of any kind.
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Is Cryptocurrency Safe Should I Invest In It
Cryptocurrency has made billionaires out of novice investors. Many times, we have thought the price of Bitcoin couldnt soar any higher, and yet, it does.
New coins and crypto-exchanges continue to flood the market and continue to try to attract the average investor. Naturally, its enticing, but its also incredibly difficult to grasp.
There are plenty of ways to invest your money and choosing the next hot thing doesnt always pan out. While some have surely hit it big, theres no guarantee youll make anything off of investing in cryptocurrency.
Butis cryptocurrency safe? Read on to understand the risks of cryptocurrency and what I, personally, think about this type of investment.
What Are The Risks Of Investing In Crypto
Before investing in crypto, you should know there’s almost no protection for crypto investors. And since this virtual currency is extremely volatile and driven by hype, that’s a problem. It’s easy to get caught up in tweets, TikToks and YouTube videos touting the latest coin — but the adrenaline rush of a market spike can easily be washed away with a dramatic crash.
You should be on the lookout for crypto scams. One often-used scheme is a pump and dump, in which scammers encourage people to buy a certain token, causing its value to rise. When it does, the scammers sell out, often pushing the price down for everyone else. These scams are prominent, and they took in more than $2.8 billion in crypto in 2021.
From the US government’s current policy perspective, you’re on your own. At this time, the government provides no deposit protection for crypto as it does for bank accounts. This may change following Biden’s March executive order, which directed government agencies to investigate the risks and potential benefits of digital assets.
Despite all the hype, scams, periodic crashes in this market, Cesare Fracassi, who runs the Blockchain Initiative at the University of Texas, Austin, still thinks crypto has a viable future.
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Growing Adoption Among Countries Key Firms And Thought Leaders
Generally, its bad practice to do something just because all the cool kids are doing it but crypto is a different story. Heres a list of companies and thought leaders who are betting big on the future of cryptocurrency:
- Square. The payments firm is over worth over $100 billion. They also recently added a Bitcoin-focused department to the company, focused on the future of decentralized finance.
- Jack Dorsey. The CEO of Square and Twitter has said that there is nothing more important for him to work on in his lifetime than Bitcoin.
- Tesla. In April of 2021, the most valuable car company in the world purchased $1.5 billion worth of Bitcoin.
- PayPal. As one of the top payment processing firms globally, PayPals decision to let its users hold, buy, and sell cryptocurrency is significant.
- . The Dallas Mavericks owner has likened blockchain tech to the early days of the Internet and owns both Bitcoin and Ethereum.
- El Salvador recently classified Bitcoin as legal tender. As one of the largest nations in Central America, this is a major development.
- JP Morgan Chase. Despite CEO Jamie Dimons skepticism, the investment firm has opened crypto funds for its wealthiest investors.
How To Pick A Cryptocurrency To Invest In
Before you go ahead and buy some coins or tokens just because somebody says it’s a good investment, it will pay to do some research.
First of all, it’s important to understand that picking a good cryptocurrency is not like picking a good stock. A stock represents ownership in a company that creates profits for its shareholders, or at least has the potential to do so. Owning a cryptocurrency represents ownership in a digital asset with zero intrinsic value.
What makes a cryptocurrency increase or decrease in price is simple supply and demand. If there’s increased demand and a limited supply increase, the price goes up. If supply becomes constrained, price goes up, and vice versa. So, when evaluating a cryptocurrency, the most important questions to answer are how the supply increases, and what will drive demand for the coin higher.
You can answer those questions by reading the white paper that a cryptocurrency team publishes to attract interest in their project. Look at the roadmap for a project and see if anything could spark an increase in demand. Research the team behind a project and see if they have the skills to execute their vision. Try to find a community of people already investing in the cryptocurrency and gauge their sentiment.
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