A cryptocurrency, broadly defined, is virtual or digital money that takes the form of tokens or “coins.” While some cryptocurrencies have ventured into the physical world with credit cards or other projects, the large majority remain entirely intangible.
It’s possible to get filthy rich by investing in cryptocurrency in 2021. But you could also lose all of your money. How can both be true? Investing in crypto assets is risky but also potentially extremely profitable. Cryptocurrency is a good investment if you want to gain direct exposure to the demand for digital currency, while a safer but potentially less lucrative alternative is to buy the stocks of companies with exposure to cryptocurrency. Despite the inherent risks, cryptocurrencies and the blockchain industry are consistently growing stronger. Much-needed financial infrastructure is being built, and investors are increasingly able to access institutional-grade custody services. Professional and individual investors are gradually receiving the tools they need to manage and safeguard their crypto assets.
Owning some cryptocurrency can increase your portfolio’s diversification since cryptocurrencies such as Bitcoin have historically shown almost no price correlation with the U.S. stock market. If you believe that cryptocurrency usage will become increasingly widespread over time, then it probably makes sense for you to buy some crypto directly as part of a diversified portfolio. For every cryptocurrency that you invest in, be sure to have an investment thesis as to why that currency will stand the test of time.
If buying cryptocurrency seems too risky, you can consider other ways to potentially profit from the rise of cryptocurrencies. You can buy the stocks of companies such as Coinbase, Square, and PayPal or invest in an exchange like CME Group (NASDAQ:CME), which facilitates crypto futures trading. While investments in these companies may be profitable, they do not have the same upside potential as investing in cryptocurrency directly.
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