Is Crypto Dead?

October 5, 2021

Cryptocurrency has had a volatile few months. This year, the ebbs and flows of crypto have been exceptionally strong. One minute it is growing strongly, the next it has lost all of its gains in a matter of moments. Bearing that in mind, many investors have started to speculate whether Crypto is dead. But is that really the case? And, is it even possible? 

Here, we look at answering those questions by highlighting the pros and cons of cryptocurrency so you can ascertain whether you want to learn how to invest in cryptocurrency for your portfolio or not. Remember when choosing investments, it is essential that you choose those investments bearing in mind your own risk profile and specific situation. 

Pros Of Investing In Crypto

There are a number of advantages to investing in cryptocurrency which may make you start looking for the best cryptocurrency trading platforms you can find. The best UK cryptocurrency brokers should help you make the most of the following advantages, but make sure that you are certain the asset class is totally suitable for you, and that the broker answers all your needs and requirements too. 

Decentralised

Of course, one of the biggest attractions to learning how to invest in Cryptocurrency is the fact that it is decentralised. As a result, no Government oversees it. That’s a massive bonus to the blockchain technology that lists all cryptos like Bitcoin. It makes the asset class above Government policy or other national (and sometimes international) influences. It is therefore far less affected by inflation or deflation, amongst other usual market forces. Plus, practically speaking, being decentralised means that two investors from different countries will not have to pay any exchange rates or international transaction costs when trading a cryptocurrency between them.  

Diversification

Adding cryptocurrency to a portfolio can provide some fantastic diversification benefits. Because the asset is decentralised and therefore less impacted by Government actions, cryptocurrencies move in different ways to other markets that are far more closely impacted by Government policy. As a result, when learning how to invest in cryptocurrency, one of the first things you notice is the weak correlation between crypto and more traditional asset classes. Consequently, crypto can offer diversification benefits that can help minimise the losses that your portfolio incurs as diversification can help reduce investment risks that a portfolio solely invested in stocks or bonds may attract.  

Volatility and Returns

It is not often that volatility is referred to as beneficial. Yet volatility does actually create a market - price rises and falls are why people invest at all. One side believes they are buying an asset too cheap for what it could actually achieve, while the other thinks it is at the highest point it will ever reach. Volatility can make it difficult to predict the positions of both sides. 

Yet, there is another investment technique that seeks to make profits from volatility. Speculators make returns from simply buying and selling assets - relying on the fact that there will definitely be market movements. The volatility of crypto may make it hard to learn how to invest in cryptocurrency at first, but it can provide investors with some attractive returns - if they time their buys and sells correctly. Something that the best trading platform should be able to support investors with.   

Cons Of Investing In Crypto

Volatility

Of course, volatility can make for a huge deterrent to investors. It means that following a common buy-and-hold strategy can make for some difficult times. The temptation to sell when an asset is relatively low in price can be hard to resist. For, many investors may sometimes want to cut their losses and move on. And also, volatility simply makes timing market entrances and exits very hard. It is not easy to achieve optimum returns on an asset that loses 50% of its value in one week - which Bitcoin has done often this year. 

Unregulated

While a decentralised system will act as an attraction for many investors, it can also be a disadvantage. The decentralised nature of cryptocurrency means that it is also highly unregulated. It, therefore, does make it a slightly riskier asset class to some investors than others. For, no regulation poses a great deal of uncertainty over the asset and uncertainty is not something that investors often want. 

Hacking

While the best UK cryptocurrency brokers can help you make as well a timed crypto trade as possible, one disadvantage to holding cryptocurrency is the attraction for hackers. Hackers love to crack a system - sometimes for financial gain and sometimes simply for notoriety. Cryptocurrency is a highly complicated system so the attraction for hackers is high. Not only do they gain notoriety for hacking something exceptionally hard to infiltrate, they can also steal something of high financial worth if they do things properly. 

For example, there was recently an attack on Poly Network when over $600million worth of cryptocurrencies were stolen. Hackers in this instance proclaimed they were hacking the system to highlight its vulnerabilities - and in a way were calling for stronger regulation or oversight to ensure that the system could no longer be manipulated for fraudulent purposes.

Can Crypto Be Shut Down? 

The fact of the matter is however, even when all these pros and cons are examined and weighed up in comparison to one another, crypto is not a dead asset class. There are still plenty of places that the technology can grow to and be used in everyday life. Plus, the fear that it may be shut down - perhaps the biggest risk of all for investors - is not well-founded. At present, it is not possible for even the most authoritarian of Governments to shut cryptos down. What is possible, however, which may put investors off, is that more regulation may start to be enforced over the crypto market which may deter many as it does mean it becomes more centralised and subject to Government involvement. 

Rachel Lee
Having worked at Morgan Stanley and BNYMellon for over 10 years in pensions and investments, Rachel now works as a full-time business and financial writer.

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