There remains a lingering undertone of skepticism whenever the topic of cryptocurrency is raised, and with good reason. Bitcoin - the de facto standard for cryptocurrencies - has its own list of reasonable Cons:
- Widely speculative market
- Slow and expensive compared to traditional payment services and other cryptocurrencies
- Never was a better solution for money laundering
- Not regulated
- Lack of protection in the event of loss or damage to the hard drive
- High market volatility
Despite these well-known shortcomings, Bitcoin defies detractors and remains relevant and more resilient than experts expected.
Just as there is a long list of drawbacks, there are benefits that everyday institutions and investors know about. The alternative to fiat, the bitcoin gold standard, and the potential to discontinue traditional banking services offer an attractive glimpse into the future.
And what about the nearly 9000 other altcoins? Should You Take Altcoins Seriously?
The answer depends on your risk appetite. From dogecoin's meteoric rise, Etherium's resilience, to U.S. federal investigations into PayCoin, there are many different alternative currencies out there that have popped up or disappeared.
In the case of Dogecoin, it is difficult to pinpoint why the quotation it has skyrocketed, aside from the fact that people are just starting to buy it. This speculative nature of the market makes investing in altcoins a high-risk business.
Learning and investing in traditional markets may be best for those who are more risk averse.
It is not uncommon to compare altcoins with penny stocks. Like penny stocks, altcoins have a low market cap and are vulnerable to massive price swings that attract short-term traders looking to make a quick profit.
Unfortunately, cryptocurrency price swings are often the result of news and rumors, that you need a lot of luck. Bitcoin, arguably the most stable, has also seen extreme volatility over the past 10 years and has high levels of risk.
Furthermore, altcoins are even more dangerous, where many currencies rise and fall without ever recovering.
Just like the wild west, if you can dodge dysentery, wolves, hunger, bandits, a long winter and get to the promised land, you may find gold. There are unique and exciting proof-of-concept altcoins that could very well be a worthwhile investment.
However, if you are planning to invest in altcoins, you need to know what game you are playing. There is no "secret sauce" to find the next 10x altcoin. So do your due diligence and understand who is behind the cryptocurrency and their value proposition.
Due diligence and some questions to ask
Here are some questions to ask yourself when looking at a particular cryptocurrency:
- What is the company's business model and white paper?
- Who are the developers and the team behind the cryptocurrency?
- Have you checked the website?
- Who are their partners?
- How transparent are they?