Should you invest in crypto? Here is one way to find out

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Learning to invest in general can be intimidating for most people. The complexity of cryptocurrency can be on a whole new level. New technology that has the potential to disrupt a wide range of industries is certainly drawing attention. And while the returns so far have been nothing short of spectacular, there is still a lot to be proven before people view the asset class less as a speculative tool and more as a legitimate wealth generator.

If you are seriously considering investing in cryptocurrencies, then you’ve come to the right place to help find the answer.

Image source: Getty Images.

it depends on what you think

According to McKinsey, a consulting firm, the amount of wealth in the world today is north of $ 500 trillion. This figure includes financial assets, such as stocks, bonds, and cash, and real assets, such as machinery, equipment, and real estate. This value more than tripled from 2000 to 2020.

As it stands, the entire $ 2,000 billion crypto ecosystem represents less than 0.5% of global wealth. Even though the cryptocurrency market has skyrocketed over 11,500% in the past five years, it is undoubtedly a tiny amount in the grand scheme of things.

You must be wondering where I’m going with throwing all these crazy numbers. Well, whether or not you should invest in cryptocurrencies comes down to one question: do you think the share of cryptocurrency in global wealth will increase or decrease in the future? A complex financial model is not necessary. At a high level, it really is that simple.

In my opinion, cryptocurrencies will increase their share of total global wealth. I believe so for two main reasons. First, the entire industry has proven its resilience and shown that it is not just a fad. Crypto gained popularity and garnered a lot of attention in 2017, and prices have skyrocketed. After the fall in values, the crypto flew under the radar until the pandemic took hold in mid-2020. Since then, we have seen a steady increase in value, as well as significant innovation.

And that brings me to the next point. There is so much talent gravitating towards crypto that it’s hard not to believe that this technology is here to stay. Similar to the emergence of the internet in the late 1990s, digital assets are a playground for speculation, but more importantly, for entrepreneurs looking to build viable businesses. As a result, I think it’s reasonable to assume that cryptocurrencies will increase their share of global wealth over time.

Here’s a good place to start

A good rule of thumb is to only invest money in crypto that you are comfortable losing. Even with the astronomical rise in crypto prices, we can’t forget that this is still a nascent and volatile asset class that still has a lot to prove. Only you know your financial situation, but more importantly, only you know your psychological makeup. Therefore, investing an amount that allows you to sleep well at night, while not having a negative impact on your financial situation in the event of deterioration, is essential.

Once you’ve settled a dollar amount, Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) are great places to start. Both have long track records, deep developer networks, increased institutional interest, and liquidity. Together, they make up about 59% of the entire crypto market.

Created and published in 2009, Bitcoin was the world’s first cryptocurrency project. It is a decentralized payment network, a system that allows anyone in the world to send money to anyone else with low (or no) fees. The breakthrough innovation was that all of this is possible without the need for a central authority. Bitcoin is slowly gaining widespread adoption as a legitimate payment mechanism.

With its current value approaching $ 400 billion, Ethereum is the next leading cryptocurrency behind Bitcoin. What makes Ethereum different, and better for some, is that it’s a programmable blockchain. Self-executing software, known as smart contracts, can be built on top of it, again without the need for a central authority. Ethereum has spawned massive innovation with decentralized applications and non-fungible tokens (NFTs).

Hope you now have some clarity when it comes to investing (or not) in cryptocurrencies. It’s exciting, fast-paced, and disruptive technology that should be on everyone’s radar.

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Neil Patel owns Bitcoin and Ethereum. The Motley Fool owns and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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