Cryptocurrencies are slowly but surely making their mark in the world. What we are witnessing in front of our eyes is perhaps the biggest and most absolute disruption of the financial world as we know it.
With everyone either already on board the crypto trading train or waiting to get on board, it’s no surprise that the market cap of this industry is estimated to be over $2.6 trillion. Research suggests that there are over 300 million active crypto users in the world today, and the number is increasing every day.
While crypto has garnered a significant amount of media attention, it has also attracted a lot of regulations and scrutiny from various governments.
Amid all this brouhaha surrounding cryptocurrency and crypto trading, it is important to take a step back and analyze the larger picture more critically.
Pros of cryptocurrencies
Here are some major pros of the crypto industry:
1) Inherently secure technology
The basic infrastructure on which cryptocurrency is created i.e., blockchain, is an extremely secure technology. Blockchain is a data ledger that has a record of every transaction ever made on it. This ledger is decentralized over a number of computers. This makes it impossible to compromise as no hacker can access all the computers in one go. Data once stored on this ledger is permanently safe.
2) High risk, high reward
A factor that is common to all the cryptocurrencies out there is volatility. It is this volatility that can be a pro or a con, depending on how you are able to use it. It is this volatility that provides CFD investors with potential trading opportunities. For example, Ether’s value almost doubled between July 2021 and December 2021! This goes to show how crypto’s inherent volatility makes it one of today’s most interesting CFD instruments.
3) Round-the-clock trading
As opposed to the traditional stock exchanges across the world, on which trading takes place during specified business hours, crypto trading takes place 24 hours a day on crypto exchanges. This means an investor does not need to wait for NSE or NASDAQ to open for him/her to start trading. With cryptos being mined and coming into circulation round the clock, there is no start time or end time for crypto trading. This provides a lot of flexibility and is a definite plus point for those who wish to observe the markets outside the traditional work hours.
4) Can help counteract increasing inflation
Cryptocurrencies are not dependent on or tied to any one singular economy. So, a crypto trader has to worry only about the global demand-supply of coins and tokens rather than about national inflation. Since the number of cryptocurrencies in circulation always has a limit (annual limit or a lifetime limit), the question of inflation does not come up.
5) Fairer system
Blockchain was created as an alternative to the traditional financial system, in which one has to place trust in a third party for the processing of transactions. A number of financial scams across the world in the past two decades have highlighted the glaring security lapses associated with the present financial system. Cryptocurrency and crypto exchanges provide a transparent, fairer alternative and remove the need for intermediaries.
Cons of cryptocurrencies
Now to get to the other side of the coin, here are the major cons of cryptos:
1) Can be extremely volatile
The volatility of the crypto trading market can be seen as a pro if an investor knows how to navigate it correctly, as with CFD trading. However, it can also be a major con for the novice investor. Always remember that behind all the headlines of cryptocurrencies’ values skyrocketing, there are big crashes in value as well.
If your goal as an investor is to keep making successful trades, you might want to look elsewhere. The crypto trading market is where stability goes to die! It is a market that thrives on intense speculation. It was some time back when a single tweet by Elon Musk sent the value of Dogecoin through the roof. To put this in context, Dogecoin is currently trading at $0.13.
2) Understanding the domain can be tough
Blockchain, cryptocurrency, coins and tokens, altcoins, Bitcoin mining – understanding the crypto domain and the nature of crypto exchanges is no mean feat and not everyone’s cup of tea. It requires singular focus and constant research to make sense of this ever-changing field, and this may not work for everyone. Trying to invest and trade in something without knowing the fundamentals can be particularly risky.
3) Not a long-term investment, yet
When compared to the standard modes of payment and the stock exchange, cryptocurrency and crypto trading haven’t been around long enough for us to know how it pans out in the long run. The stock market has centuries and centuries of history to back it. Investing in gold prices is a concept as old as time. But the word Bitcoin and with it the entire crypto world made its entry no earlier than 2008.
Therefore, what the future holds for cryptocurrency and crypto trading is something even the experts aren’t quite sure of. Sure, it seems set to revolutionize the financial world, but it just as easily could bring no revolution. We don’t know for sure. Investing in something that no one is sure about can be a big chance.
4) Still taxable
Even though there is no singular organization to control cryptocurrency or crypto trading, more and more countries are making it taxable. Some of these countries include Japan, the United States, the United Kingdom and India. The logic behind this is that any gains/profits made by an investor by investing in crypto results in an increase in income, which then falls under the purview of income tax. Many countries are still closely watching this market and have related legislation in the pipeline.
5) Prone to scams
While crypto is a lot safer when compared to transactions in the traditional financial system, it is not completely free from security lapses. You could lose the key to your digital wallet that contains your cryptocurrency. (This, of course, does not apply to investing in crypto prices via CFDs as no wallet is required). You could also fall for any of the online scams which attempt to get control by incorrect means. It is interesting to note that cryptocurrency worth $2.1 billion was stolen in 2021 alone.