Should You Invest in Crypto After Weighing the Pros and Cons?

With all the excitement surrounding Bitcoin's recent climb to over $100,000, many investors — new and experienced alike — are wondering if it's time

As Bitcoin continues to soar, reaching over $100,000, many investors are considering joining the crypto bandwagon. However, it's crucial to proceed with caution as cryptocurrencies are highly volatile and not backed by tangible assets like cash flow. This means that investors can incur significant losses if they are not vigilant. It is essential to thoroughly analyze the potential risks and rewards before making any investment decisions.

Here are some of the pros and cons of investing in crypto to help you decide if it's right for you:

Pros of investing in crypto

Potential for life-changing gains: Cryptocurrencies, especially Bitcoin, are known for their rapid price movements, which have made some early investors unfathomably wealthy.

For instance, if you take a quick glance at Bitcoin's price history, you'll notice that the token was trading at $0.00099 per bitcoin in late 2009, when $1 was equivalent to 1,309.03 bitcoins. If you had invested $1,000 in Bitcoin at the time, your investment would have been valued at approximately $103 billion recently.

Crypto is trendy: Cryptocurrencies have long been touted as an exciting and tech-forward investment. If you're seeking some drama and want to be on the front lines of an asset that garners a ton of attention and has the potential for huge price appreciation, then consider crypto.

Since its inception, crypto was designed to be a digital asset that didn't require a middle man or financial institution to manage and track transactions, making it super popular among folks who believe that financial transactions shouldn’t rely on a middle man.

More recently, President-elect Donald Trump’s victory and his support of the crypto market have boosted prices. Bitcoin is up 126% year to date, and it hit a new all-time high of $102,000 in December.

U.S. regulators have also been relaxing requirements for specific ETF models. In January 2024, the Securities and Exchange Commission approved several Bitcoin ETFs, boosting crypto’s popularity among everyday investors and making it easier to invest in the digital asset. In July, Ethereum ETFs were also introduced.

Crypto is a non-correlated asset: Cryptocurrencies are non-correlated assets, meaning their prices don't directly follow the ups and downs of other investment vehicles. Stock prices, on the other hand, tend to fluctuate based on what's going on in the broader economy, and they also react to company news, quarterly earnings, and even other stocks' price movements.

That’s not to say crypto isn’t sometimes affected by broader economic conditions, too. Investors’ appetite for riskier investments like crypto, for example, waned in 2022 when the Federal Reserve was hiking interest rates to combat inflation. Investors instead turned toward investments perceived as being safer, like gold, value stocks and TIPs (Treasury Inflation-Protected Securities).

While crypto’s non-correlated nature can be a drawback when stocks are rallying, it can provide some diversification in your overall portfolio.

Crypto operates in an evolving sector of technology: Cryptocurrencies operate on the blockchain, which essentially records the flow of information (including transactions) and, by design, aims to be transparent (provided you can access the blockchain database holding that data).

This type of decentralized finance ensures information is stored securely, while also maintaining a ledger that prohibits changes after a transaction is entered, creating a clear audit trail. Many crypto supporters believe that this digital-ledger type of technology is the future of finance.

Cons of investing in crypto

Elevated risk of total losses: Sometimes it can be hard to wrap your head around just what exactly makes crypto prices move up and down. At the end of the day, it’s important to know that crypto prices are only based on what others are willing to pay for the token. That means crypto isn’t backed by hard assets like cash flow or underlying business performance.

Prices are only based on hype and lots of price fluctuations stem from discussions on social media platforms like X, Reddit and Discord.

While some investors have been able to ride the highs that are created by the hype on these platforms, many investors have also lost money — and a lot of it. Depending on what type of coin you invest in, you could lose everything.

Crypto scams: Another con are cryptocurrency scams. These scams can take many forms, and knowing what they are can help keep your money and identity safe. Here are a few:

Ponzi schemes: In this scenario, you’re rewarded for getting more people to invest in a specific cryptocurrency. Any money brought into the scheme is then used as payouts for people who are higher in the scheme pyramid.

Rug pulls: This scam is when the founders of a cryptocurrency disappear one day and take all their tokens (attached