Will 2022 be the year you start to invest in cryptocurrency? That's really your call.
But if you've an active investor who's yet to dabble in the world of cryptocurrency, you may be feeling pressure to get started. Doing so is a move that could end up working to your benefit -- or backfiring. Really, there's no way to know.
In fact, it's easy to make the case that you should be buying cryptocurrency, and it's also easy to argue that it's a poor choice. Let's dive in.
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Reason No. 1 to buy cryptocurrency: You could make a lot of money
Many investors have done well with cryptocurrency, and you may end up having the same experience. In fact, a good bet is to treat your cryptocurrency holdings as money you can afford to lose and expect to lose.
If you go in with that attitude and make money, you'll be ahead. And if things don't work out, you won't face too harsh a blow.
Reason No. 2 to buy: It's a good way to diversify your portfolio
A diverse portfolio could make it easier to grow wealth, and it can also buy you some protection during periods of economic volatility. Adding cryptocurrency to your portfolio could be a good way to diversify, especially if you're primarily loaded up on stocks.
Reason No. 1 not to buy: Cryptocurrency's extremely volatile
Stocks are known to be a far more volatile investment choice than bonds. And that's enough to spook some investors. If you're already uneasy about owning stocks, you'll need to prepare for an even more wild ride with cryptocurrency.
That may not align with your risk tolerance and comfort zone. If that's the case, there's no reason to push yourself to buy cryptocurrency -- not when you can take on less relative risk in the stock market.
Reason No. 2 not to buy: Its long-term value is questionable
Some of the companies that trade publicly today have been around for 100 years or more. Cryptocurrency, by contrast, has only been around for a little over a decade. And because of that, we don't know how viable it is as a long-term investment.
If regulations come down the pike that make cryptocurrency less attractive from a tax perspective, then its value could plunge. And if it fails to become a reasonably common form of currency, then a similar thing could happen.
Many people prefer to take a long-term approach to investing. But cryptocurrency may not fall into that pattern all that well.
Should you start buying cryptocurrency?
There's money to be made with cryptocurrency, but that doesn't automatically make it the optimal investment for you. That said, if you're going to own cryptocurrency, start slowly. Invest a small portion of your money in digital coins, and see how well you fare and how well you're able to sleep at night.
Also, do your research before diving in. There are thousands of cryptocurrencies to choose from, and the currencies that get the most press may not be the ideal ones for your portfolio.
