Why You Might Want to Look into Cryptocurrencies to Build Long-Term Wealth (and Why You Might Not)

Think you might want to invest in cryptocurrency? It should be a part of your portfolio: 1. As long as you can afford to lose the money you invest and 2. You’re going to keep it for a long period of time. 

Even though it’s a highly volatile asset, you can build wealth by investing in cryptocurrency over the long term.  

A study by the New York Digital Investment Group determined that about 46 million Americans own at least a share of Bitcoin. However, its ups and downs may seem more dizzying than a rollercoaster. 

That's why those investing in crypto should also unquestionably have a plan for emergency savings and a solid retirement plan.

Once that’s in place, however, you might want to consider crypto as a key component of your long-term portfolio. You can then join the HODL crowd, if you will. 

Consider Your Allocation and Risk Tolerance

Experts recommend keeping crypto in your portfolio at a low percentage, particularly if you're an older investor. Younger investors can chance the investment over the long term because they have more time on their side. (Some experts recommend only investing in crypto to the tune of 5% of your portfolio.)

Experts also recommend that investors buy crypto using strategies similar to those used for stocks, such as dollar-cost averaging. This means you put in small amounts of money consistently, instead of buying all at one time. 

Along with allocation, consider your risk tolerance. Does this sound like Investing 101? 

Kind of! Dumping all your other investments might make it difficult to meet your financial goals. And always keep in mind that cryptocurrency, at this time, remains a seriously speculative investment.

Learn How it's Done

Experts recommend sticking to the well-known cryptocurrencies, Bitcoin and Ethereum. Expert Suze Orman says to meme stocks and other get-rich-quick investments. 

So, how do you do it? Learn the steps to investing in cryptocurrencies so you do in the most careful, effective way possible: 

Step 1: Choose an exchange. 

You want to conduct research so you know the right type of exchange to use. Make sure you choose a secure, legitimate platform. Consider your purchase methods, coins you can buy, fee structure, user interface and user experience. You can choose from hundreds of cryptocurrency exchanges, but a few of the most trustworthy include Binance, Coinbase, Kraken and CEX.io. 

Step 2: Create an account. 

Once you've picked the right exchange for you, create an account. You'll need to input various items, depending on the exchange's policies. YOu may have to submit documentation so the exchange knows you're who you say you are.

Step 3: Deposit money into your account.

You can deposit money into your account by linking your cryptocurrency account with your bank account. You can deposit via a wire transfer by using a debit/credit card. You may face a waiting period before you can use your money. 

Step 4: It's buy time!

At this point, you can choose your cryptocurrencies. Again, Experts trust Bitcoin and Ethereum. You can choose both or just one. You may want to know the symbols for each cryptocurrency before you get to this point. Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE), for example.

You can keep your cryptocurrency on the exchange. However, cryptocurrency exchanges have been hacked before. That brings us to a storage method option.

Step 5: Consider a storage method.

The safest way to store bitcoin involves using a digital wallet. Just like it sounds, a digital wallet stores your bitcoin until you need to use it. You can use hardware-based wallets or web-based wallets on your phone or on a computer desktop. You can even print the private keys and addresses and use it in paper form.

Considering just leaving your crypto on the exchange? It's highly recommended that you don't — get a wallet so you know your crypto stays safe.

Reason No. 1 to Invest for the Long Term 

If you want an inflation-proof, reliable store of value (no political body or government agency can dilute crypto's value), you may want to consider crypto. Cryptocurrency experts have predicted that bitcoin will overtake the U.S. dollar as the dominant form of global finance by the year 2050. It'll go over $66,000 by the end of 2021. 

Reasons You Might Want to Avoid Crypto for the Long Term

Think crypto just doesn't make sense for you? Let's explore some reasons why you might shy away from it in favor of traditional investments.

Reason 1: It's volatile.

Well, that's hardly a news flash. Price charts show wide swings all the time. For example, The price of Bitcoin last dipped below $30,000 in July, to $29,514. This occurred after it dropped to $29,031 in late June — the first time it had dipped that low since January.

In other words, if you're looking for more stability in your investments, look elsewhere. 

Reason 2: Valuation is impossible.

There's no company that backs Bitcoin. For example, with traditional stocks, you'd take a look at management and revenues. You'd check out the likelihood of its products and services to make it into the mainstream.

Cryptocurrencies don't offer that same "luxury" because they're not actually tangible.

Reason 3: You might find it hard to transact.

Let's say you want to buy a pizza with your bitcoin. Can you do that everywhere? 

Not on your life. You've got to find an entity willing to accept cryptocurrency. Will they break in on Main Street, USA as an acceptable payment option? It's tough to say what will happen later on. For that reason, you may not want to invest for the long term.

Reason 4: Fraud and theft. Enough said.

Again, exchanges can get hacked, and, unfortunately, so can your wallet. The Securities and Exchange Commission issued an investor alert about fraud surrounding cryptocurrencies. Now, it's true that someone can get into your bank account and do the same thing, so whether this argument is thin depends on your perspective. 

Reason 5: No regulation.

The banking system doesn't support crypto. The government doesn't support crypto. In addition, there's also no regulation of the crypto market and it's also not protected by SIPC insurance. Once your money's gone, it's gone.

Reason 6: It's susceptible to tweets and other propaganda.

Look no further than Tesla CEO Elon Musk's repeated attempts to change DOGE's position. With one tweet, the cryptocurrency in question can go up and down. How can you prepare for the future with that kind of volatility?

What Does Crypto's Future Mean for You?

Cryptocurrency experts tout bitcoin's future success, but you can talk yourself out of it by looking at the Colonial Pipeline hack and other fumbles. 

In addition, the Federal Reserve has researched the possibility of a national digital currency. Will that leave bitcoin in the dust?

It's possible.