These are the reasons I took the plunge into crypto investing.
Investing in crypto is definitely a touchy subject in the world of personal finance. Some financial personalities are staunchly anti-crypto because of the risk involved. Others are more open minded because they believe in the blockchain technology behind crypto or because of the staggering increases in value.
Despite how controversial it is, crypto is clearly catching on. A few of the biggest cryptocurrencies have become household names by now. The number of people who buy crypto is rapidly rising, especially now that there are so many quality cryptocurrency apps that make the process easy.
While I had dabbled in crypto before, I made it part of my investment strategy this year. If you're on the fence about crypto investing, here's what convinced me to do it.
1. I have a balanced portfolio and an emergency fund
The biggest reason I feel comfortable buying cryptocurrencies is because I'm in a stable financial position. I invest in a mutual fund every month to build a nest egg for retirement. I'm also buying stocks, and I have a large enough emergency fund to cover over six months of living expenses.
Those are all good prerequisites to check off before investing in crypto. Because of the risk involved with cryptocurrencies, it's not wise to pin all your retirement hopes on them or to invest in them without first building up an emergency fund.
2. I wanted to add a higher risk and reward investment
I've always liked the idea of putting a little money in investments that offer more risk and reward. Most of my money still goes in stocks, since those are safer. But there's nothing wrong with adding more exciting assets to your portfolio, at least in small doses. If you're interested, putting 5% to 10% of your portfolio in these types of investments makes for a solid balance between security and potential profits.
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Cryptocurrency certainly fits the bill as a high-risk, high-reward investment. Big price swings happen all the time. Just about everyone heard about the remarkable rise of Bitcoin (BTC), which went from a value of just over $5,000 in 2020 to over $50,000 a year later.
It's far from the only coin to have those kinds of results. There have been massive price gains for Ethereum (ETH), the number-two cryptocurrency. We've also seen Solana (SOL) climbing 7,000% in value from the start of 2021 through the end of August.
3. I have plenty of time to wait for it to pay off
Another reason I'm comfortable with investing in crypto is because I'm still young and can afford to take on more risk.
If retirement was right around the corner, I'd probably be more cautious. Since it's not, I don't mind waiting five years, 10 years, or longer in hopes of a sizable return on my investment. And even in a worst-case scenario where it doesn't pay off, I have the time to keep building a robust retirement fund so I'm covered regardless.
4. I like the returns available by lending and staking crypto
One of my favorite things about crypto is the opportunity to earn rewards on your holdings. The most common ways to do this are lending and staking.
Lending crypto works just like lending money, and there are several crypto exchanges that offer this feature. The Gemini exchange is a secure option that offers high interest rates through Gemini Earn®. And if you're worried about crypto's volatility, you can lend stablecoins that aim to follow the value of the U.S. dollar.
Staking crypto is when you pledge your crypto for use validating transactions. Many coins offer interest rates of 20% or more for staking, so you can make quite a bit this way. Not all of these coins are good investments, though, so it's important to do your research on any that you plan to stake.
5. I think that at least some cryptocurrencies will be successful
Nobody knows what will happen with cryptocurrencies, and any time you invest in them, there's the risk of losing your money. That being said, I think there's a strong chance that some cryptocurrencies will have long-term success.
Bitcoin seems to be carving out a place as a digital store of value. Ethereum introduced the idea of a programmable blockchain, and now it's the home to all kinds of decentralized finance (DeFi) applications -- apps that offer financial services without a middleman. Stablecoins could catch on as a fast, affordable way to make peer-to-peer money transfers.
There are lots of ambitious cryptocurrency projects out there. It's hard to know which will be the most successful, and that's why I like to invest in a mix of different cryptos that look promising.
Choosing how to invest your money is never a decision to take lightly. I began investing in crypto based on my current situation, my plans, and what I thought of the crypto market overall. Try taking that approach if you're considering an investment of your own.
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Lyle Daly owns Bitcoin and Ethereum.
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