January 27, 2021 | AtoZ Markets – Cryptocurrency has become an exceptionally popular investment. The market capitalization for this area has absolutely exploded of late, as cryptocurrency has proven itself to be a very high-growth area.
However, it isn’t for everyone: The market is still very new, largely unregulated, and contains many potential dangers. As noted by the financial experts at SoFi Invest, “Crypto is decentralized, meaning that it is not controlled by a central authority like a bank or government and instead is exchanged person-to-person. Bitcoin was the first cryptocurrency.” This comes with positives and negatives, and it’s not for everyone.
So, should you buy cryptocurrencies in 2021? Here’s an overview.
Many Types of Cryptos
One of the most common misnomers about cryptocurrency is that it is only Bitcoin. It’s true that Bitcoin is, unquestionably, the biggest and most well-known form of cryptocurrency no the market today. It has a massive market capitalization – more than $600 billion – making it far and away the most popular form of cryptocurrency. Furthermore, it is currently trading at $32,500. While that number changes on a regular basis, this makes Bitcoin the most valuable crypto on the market.
However, there is more to the cryptocurrency market than just Bitcoin…a lot more. Indeed, there are over 6,700 hundred types of cryptocurrencies on the market today! Furthermore, the regulations in this area are relatively lax, the market is highly decentralized and technology is evolving all the time. As a result, there are quite a few new cryptocurrencies coming out on a regular basis. If Bitcoin isn’t right for you, there are many other currencies that may be. Other examples include Ethereum, Litecoin, Cardano, Polkadot, and much, much more. These coins operate with some slight technical differences than Bitcoin, but all are examples of secure cryptocurrencies that have shifting value – just like Bitcoin.
To say that the cryptocurrency market has grown over the past few years would be a massive, massive understatement. Indeed, the growth has been extremely noticeable.
Take the various coins mentioned above. Bitcoin has grown nearly 400% in the past year. That number is 200% for Litecoin, more than 900% for Cardano, and 500% for Polkadot. With the rapid proliferation of Bitcoins and the increasing trade volume that each type of coin is experiencing, it seems possible that the market for Bitcoin is only starting to expand.
This has led some investors to make relatively bullish predictions for the Bitcoin market. Some investors in the market have made astonishingly high predictions, with some going as far as to state that Bitcoin may be worth more than $250,000 in the next year. This move will come as a result of more institutional investors purchasing the digital investments. They also predict that a continued diversification of the cryptocurrency market will drive the price of other coins upward.
If cryptocurrency truly does gain additional institutional support – meaning that things like pension funds and university endowments invest in them – the price will unquestionably increase and more investors will flock to this area. That hasn’t happened yet – and that may mean that cryptocurrency is a fantastic investment opportunity for you.
However, don’t let that growth fool you. While the above examples have all shown major growth, that growth hides significant volatility and comes with major risks. Each of these coins has dropped significantly off of its former highs at one point during the past year, sometimes by as much as 25%. The market is also much more volatile than your average blue-chip stock, as the price tends to fluctuate wildly, depending on the market circumstances of the day. It also seems very likely that additional regulations will come to the market that may limit the decentralized nature of the currency.
Does this mean you should avoid cryptocurrency? Absolutely not. Risk and volatility are inherent in any investment, and this must be something for which you need to prepare. However, you must keep in mind that crypto’s newness and decentralized nature does make predictions harder to make, and you should use extreme caution when making such an investment.
So…should you invest in any of these areas in the new year? Ultimately, the answer is up to you. As you can see, cryptocurrency comes with massive growth potential, as long as you are willing to tolerate its risk and volatility.