The quick answer? It depends on your risk tolerance.
- It’s been a volatile year for cryptocurrency.
- You may be eager to buy crypto while it’s down, but that’s not automatically the right choice.
- If you understand the risks involved and buying crypto can help diversify your existing portfolio, you may want to consider investing in it.
It’s fair to say that 2021 has been a great year for cryptocurrency. But 2022? Not really. Just as the stock market has been extremely volatile this year, the cryptocurrency market has seen quite a shake-up.
This is not the best news for crypto investors. But since many well-known digital currencies have fallen significantly since the start of the year, you might be tempted to invest in crypto to get in cheaply. This is by no means a bad strategy. But before you rush out to buy crypto in late 2022, you’ll need to make sure it’s the right decision for you.
Does crypto fit into your strategy?
It’s a good idea to have a strategy when building an investment portfolio. Yours could be to amass a solid nest egg for retirement. If so, you will have to consider whether the crypto lends itself to this strategy.
Some people wonder if crypto is a viable long-term investment. There are a lot of things we don’t know about crypto. Will it become a widely accepted form of currency? Will regulations become harder to trade or treat like cash? These are points you will need to consider before deciding to add crypto to your portfolio.
Will Crypto Help You Diversify?
You will also hear that it is important to maintain a wide range of investments in your portfolio. And so if your brokerage account largely consists of stocks, then you may decide to add crypto investments to diversify. This might end up being a good idea, but proceed with caution if you’re new to crypto and don’t have much experience buying it.
Do you understand the risks involved?
Cryptocurrency has long been considered a risky investment – riskier than stocks, in fact. And a big reason has to do with the unknowns referenced earlier.
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But that’s not the only thing that makes crypto a tricky investment. When you buy shares of a particular stock, there are different financial measures you can use to gauge the financial strength of the company behind it. You can look at things like earnings per share, outstanding debt, cash flow, and more.
It’s much harder to apply the same thought process to crypto. The value of crypto largely depends on what investors are willing to pay for it. And of course, if lawmakers decide to ban crypto as a medium of money, it could render digital coins absolutely worthless.
What’s the right call?
It’s easy to see why you might be tempted to grab some crypto before the end of 2022. But before you do that, consider the downsides involved. You may decide that you are prepared to assume the risks of own digital currenciesbut you must fully understand these risks before diving.
Finally, we talked about crypto as a general asset class as part of this discussion. But there are thousands of individual currencies you can choose to invest in. So if you decide the time is right to add some crypto to your portfolio, be sure to research different currencies individually to see which one is right for you.