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2 Reasons To Invest in Crypto -- And 2 Reasons Not To

By Christy Bieber – Nov 20, 2021 at 8:00AM

Key Points

  • Cryptocurrencies have become an increasingly popular investment.
  • Around 11% of people in the U.S. have exposure to cryptocurrencies.
  • There are pros and cons of investing in virtual coins.

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Is cryptocurrency worth adding to your portfolio?

Cryptocurrency has become a popular investment with a small subset of Americans, and around 11% of people across the U.S. have put at least some money into virtual coins.

As cryptocurrencies grow in popularity and an increasing number of them come onto the market, you may be wondering if you should also put some of your money into them? The reality is, there are pros and cons of investing in this asset, so be sure to consider these two reasons to invest  -- and two reasons not to.

Investor looking at charts on two large computer screens.

Image source: Getty Images.

Two reasons to invest in crypto

Here are two of the best reasons to invest in cryptocurrency:

  1. To diversify your portfolio: Having a mix of different assets can help you maximize potential rewards but limit risk. While cryptocurrencies are a more volatile and higher risk asset than others such as stocks and bonds, they could also provide the potential for generous rewards if you do your research and pick the right coins to invest in. If you already have a portfolio with stocks, bonds, and ETFs, adding some cryptocurrency could help flesh it out by giving you exposure to another asset class. 
  2. To potentially earn generous returns: Many cryptocurrencies have performed very well over time, and given it's a nascent asset, it's very possible that some coins have tremendous potential to perform even better in the future. That's especially true if any of the coins gain mainstream acceptance and merchants begin to take the coins as a method of payment -- or if new uses are discovered for the blockchain technologies that form the basis of many coins. If you carefully research and find a cryptocurrency you believe has solid potential, you could potentially earn a lot of money with it over time. 

Two reasons you shouldn't invest in crypto

And here are two of the biggest reasons to pass up cryptocurrencies in favor of other types of investments. 

  1. There's little proven track record of performance: Most cryptocurrencies have been around for a short time, especially relative to other assets, such as stocks of big-name, well established U.S. companies or investments that give you exposure to financial indexes such as the S&P 500. Since evaluating past returns is a good way to assess potential future performance, you have less information to go on when deciding what cryptocurrencies to invest in. This increases your investing risk and makes it much more difficult to make a realistic estimate of their future potential.
  2. They're volatile, high-risk investments: Many cryptocurrencies are very volatile, with wild springs in prices. The cost of different coins often becomes divorced from their underlying value, as random events such as a celebrity tweet or endorsement from an influencer or attention on social media push the price up (or down) dramatically. Because they are so volatile, the risk of investing in them is much greater. If you aren't comfortable taking on this risk, you can't afford to lose the money you are investing, or you don't already have some safer investments in your portfolio, then you may need to prioritize buying other assets before dabbling in cryptocurrencies. 

It's important to consider both these reasons for -- and reasons against -- investing in cryptocurrencies before you decide if they deserve a place in your portfolio.

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