Bitcoin keeps making headlines. Founded in 2009, it was once worth pennies. Now it’s surpassed $55K. Other cryptocurrencies, or cryptos, such as Ethereum, have also hit all-time highs. Meanwhile, Tesla announced it would accept Bitcoin as payment for its vehicles and PayPal allows crypto transactions. Overstock has been accepting payment in Bitcoin since 2014 and will be the first US company to pay its taxes with the cryptocurrency. Thanks to these developments, many investors who used to think cryptos were a fad now want to invest in them.
What is a cryptocurrency?
Cryptos are digital currencies. They are created, or “mined” using computer algorithms. The computational resources required to obtain them add to their value. In addition, some cryptocurrencies, such as Bitcoin, have a limited supply.
Blockchain technology and decentralization
Cryptocurrencies typically use blockchain technology. This means they are both universal and decentralized. They can be accessed by anyone with an internet connection but cannot be controlled by any central authority such as a bank or government.
Should you add cryptos to your portfolio?
When you look at the charts of leading cryptos like Bitcoin or Ethereum, they look like rocket ships taking off. If you’d invested in Bitcoin a year ago, you’d have made five times your money. This looks extremely attractive, especially when you consider that the average index fund makes about 12% a year.
However, cryptos are also volatile. A 40% correction is not unheard of. This makes them a risky investment.
Other risk factors to consider
Cryptocurrencies are not a product you can see or touch. That makes it harder to calculate intrinsic value, which helps investors figure out when a stock is overvalued.
Also, many altcoins have a high failure rate. And there is always the threat of governments deciding to regulate crypto markets.
Best investment strategy
The best strategy is to keep a diversified portfolio. Along with your more traditional investments, such as stocks, bonds, and ETFs, add some crypto. This gives you a change for making some great gains while limiting your risk.
Will I need several trading platforms?
Not necessarily. Fortunately, there are tools like SoFi Invest. This is an all-in-one investing app that allows users to trade stocks and ETFs as well as cryptocurrencies such as Bitcoin, Ethereum and Litecoin. The site is easy to use and has some great informational articles to help you do your own research.
While cryptocurrencies have already made massive gains, it’s not too late to add some to your portfolio. As more companies and even governments begin to accept cryptocurrencies, it’s easy to project that their value will continue to rise.
So, how to buy cryptocurrency? Use an app like SoFi Invest, which provides a secure platform that protects you from fraud or theft. You can easily fund an investment account that will let you trade cryptocurrencies as well as stocks and ETFs.