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18 January 2023 14h25
Source: Banco Carregosa

Cryptocurrencies: are they still worth it?

Cryptocurrencies: are they still worth it?



New cryptocurrencies are being launched every day in the market. But with the recent market turmoil, is it still worth investing in them?


Cryptocurrencies have the potential to change the financial world as we know it, but those who follow the market will have been surprised by its ups and downs. Is it worth investing in cryptocurrencies? What are the pros and cons? Discover the two sides of the most controversial assets in recent times. 


What are cryptocurrencies?


Cryptocurrencies are currencies that exist only in digital form. As the name suggests, the coins are encrypted, i.e. they consist of extremely complex lines of code that can only be accessed using a key held by the user. 


Unlike other assets, cryptocurrencies exist only as virtual values in an online database, making it virtually impossible to counterfeit. As such, they are not created by the government, nor do they depend on a financial institution to be traded, but only on the parties directly involved. The stability of these digital assets is not linked to any authority. In theory, they are immune to government interference or manipulation and are governed only by the laws of supply and demand. 


Exposure to cryptocurrencies can be direct or indirect, as is the case with Crypto Fx.


What are the benefits of investing in cryptocurrencies?


There are several reasons why investors around the world are considering cryptocurrencies as part of their capital appreciation strategy. The most obvious is the potential for capital appreciation – in November 2021, Bitcoin, one of the best-known cryptocurrencies, hit an all-time high of $68,000. The second reason is that investing in cryptocurrencies allows you to diversify your portfolio across different asset classes. Choosing assets that perform independently of each other can help balance long-term investments. 


Moreover, cryptocurrencies are highly liquid, meaning that it is easy to exchange these digital assets for other types of cryptocurrencies or even physical currencies such as dollars or euros. This allows investors to trade whenever and however they want, 24 hours a day, 7 days a week, 365 days a year – unlike, for example, stocks, which can only be traded during regular trading hours. Finally, when trading through Crypto Fx you also have the advantage of being able to take short positions (i.e. sell a position and try to profit from its devaluation), which can mitigate the impact of the devaluation of an eWallet or cryptocurrency cold store such as Bitcoin or Ethereum.


While these are the main benefits of these digital assets, it is important to balance this with the other side of the coin. 


What are the risks in investing in cryptocurrencies?


Before investing in cryptocurrencies, it is important to understand the risks involved in order to assess whether they can be incorporated into your investment strategy. To begin with, cryptocurrencies are extremely volatile assets. Since peaking, the two largest digital currencies have lost three-quarters of their value, collapsing like the riskiest technology stocks. The global cryptocurrency industry, once valued at around $3 trillion, is now worth around $900 billion.


The fact that they are not backed by a government makes cryptocurrencies more vulnerable, as was clearly demonstrated by the millions of depositors who were defrauded in the scandal at FXT, one of the main exchanges for buying and selling cryptocurrencies. In fact, the price of a cryptocurrency can fluctuate by more than 100% in a single day, resulting in both significant gains and astronomical losses. 


Furthermore, with cryptocurrency investments you do not have access to one of the most important factors to take into account when making an investment decision: a multi-year history of returns. These digital assets are relatively new and have a short track record. More than ever, your decision will be based on short data sets and intuition. 


On the other hand, investing in cryptocurrencies is not subject to the same level of scrutiny as applied to traditional financial products. Over time, however, if these assets continue to attract interest, this gap may be addressed by appropriate legislation. This would help to combat fraudulent schemes that can harm even the most sophisticated investors. 


Verdict: are cryptocurrencies worth it?


Investors in cryptocurrencies should carry out all due diligence that they would with any other type of investment. It is important not to get swept up in the hype that this or that currency is going to change the world, and to stay grounded. 


This means that it is possible to make very large profits by investing in cryptocurrencies. However, while it is possible to make very large profits from cryptocurrency, it is also possible to lose all the capital you have invested. Given this risk, cryptocurrencies can be a good investment if done correctly, with the help of financial experts and as part of a diversified portfolio. 


If investing in cryptocurrencies seems too risky, you may want to consider other less volatile alternatives. For example, you could buy shares in companies that invest in cryptocurrencies.  


Whatever you want to achieve, it is important to surround yourself with experienced and specialised professionals who have lived through the ups and downs of the market for decades, and who will guide you, keeping in mind your own risk profile. Banco Carregosa’s team will be by your side to advise you in choosing the best strategy not only for the protection of your assets, but also to increase the value of your capital.