Over 1 in 10 Americans invested in a type of cryptocurrency during the last year. NORC Researchers at the University of Chicago found this when they ran a survey on the popularity of digital currencies. And the data shows that 13% of Americans purchased or traded a cryptocurrency in the past 12 months.
Now, that may not seem like a wildly impressive number. At 13% of Americans, it’s just slightly over half the percentage of respondents who reported investing in stocks in comparison (24%). But the first cryptocurrency, Bitcoin, has only been around since 2009. People have been trading stocks since the 1700s in America (and even earlier in other countries).
So, will cryptocurrency work for you? Here’s some information to help you decide.
WHAT IS CRYPTOCURRENCY?
Cryptocurrency, or crypto, is a type of digital currency. Just like physical currency, you can use it to buy goods or services. However, it’s unregulated, so there is no central authority that governs it.
Crypto is based on blockchain technology, which is essentially a type of database. In a blockchain, it groups data together until that unit hits storage capacity. Then it’s chained to a previously filled block. This technology comes with an extra layer of security, meaning your money is a little bit safer.
Generally, you need an online app, or “wallet,” to purchase and trade cryptocurrencies. Coinbase stands out as the first major cryptocurrency exchange platform, but there are other options. Several online brokerages now allow you to trade in crypto, such as TradeStation, Robinhood, eToro, and Gemini.
WHAT IS BITCOIN?
Bitcoin is the name you’ll hear the most when people talk about cryptocurrency. That’s because it’s the most popular form of crypto, created by a presumably unknown individual or group called Satoshi Nakamoto, and it currently dominates the market. Like most cryptocurrencies, the lack of regulation, anonymity, little to no fees, and peer-to-peer trading option make it appealing to many investors.
There are other cryptocurrencies out there as well, though, like Ethereum and XRP. Some may be better optimized for certain transactions than others.
SHOULD I BUY CRYPTOCURRENCY?
Many people feel like they can’t engage in certain money-making practices. Often, we view investing as something for the upper class or elite.
Referring back to the University of Chicago study, people who invested in cryptocurrency come from various backgrounds. They are diverse, with the average trader under 40 years old and without a college degree. A significant portion are also women (41%), non-white (44%), and have a household income under $60k per year (35%).
So, if you don’t fit the “typical investor” demographic, you’re in good company when trading crypto. Because of its popularity, cryptocurrency has seen skyrocketing prices. Bitcoin, for example, rose above $30,000 during January 2021. Then, in only three months, it doubled in value to $64,642.40. That’s almost four times its 2017 peak at $17,000.
As you can see, there’s great potential for gains with cryptocurrency. But there is also an equal amount of risk. It’s considered riskier than most other types of investments, even stocks. So, if you want to avoid loss with your portfolio, you may want to avoid this option.
WHAT SHOULD I KNOW ABOUT CRYPTOCURRENCY BEFORE INVESTING?
The most important thing to keep in mind about crypto is its volatility. Bitcoin alone has seen various crashes in the past 10 years, including this year.
Remember how crypto is decentralized? That doesn’t mean a government can’t impact how well crypto is trading or put regulations on it. For example, the Chinese government recently began cracking down on digital currency mining. As a result, cryptos saw a drop, like Bitcoin, which fell below $32,000 for the first time since June 2021.
In addition, the People’s Bank of China claimed cryptocurrency-related activities are illegal as of September 24, 2021. Because of events like this, no one is sure what the future holds for cryptocurrencies. That potential risk, along with regular price fluctuations, means every investor should approach them cautiously.