Cryptocurrency has made billionaires out of novice investors. Many times, we have thought the price of Bitcoin couldn’t soar any higher, and yet, it does.
New coins and crypto-exchanges continue to flood the market and continue to try to attract the average investor. Naturally, it’s enticing, but it’s also incredibly difficult to grasp.
There are plenty of ways to invest your money and choosing the next hot thing (AKA cryptocurrency) doesn’t always pan out. While some have surely hit it big, there’s no guarantee you’ll make anything off of investing in cryptocurrency.
But is cryptocurrency safe? Read on to understand the risks of cryptocurrency and what I, personally, think about this type of investment.
What Is Cryptocurrency?
Cryptocurrency is a type of digital or virtual currency. The term “cryptocurrency” can refer to any one of thousands of digital currencies. Some of the most common (and most valuable) cryptocurrencies are Bitcoin (BTC), Ethereum (ETH), and Solana (SOL).
Crypto is essentially a peer-to-peer payment system, although some businesses accept certain cryptocurrencies as payments as well. This “currency” doesn’t rely on banks to process transactions or central governments to create the currencies being used.
Cryptocurrency can be used as a currency and a medium of exchange. But for many, it’s seen primarily as an investment.
The lack of government intervention, as well as the fact that it is completely digital, are attractive factors for investors in crypto. They mean that the currency might be more stable than national currencies in the future and more reliable as society becomes increasingly cashless. These factors also make it much easier for crypto to cross borders and be anonymous.
So, the question is: is cryptocurrency a safe investment?
Is Cryptocurrency Safe?
With every type of investment, there is some level of risk. With cryptocurrency, though, there are many different and unique risks you should be aware of. Some of the risks of cryptocurrency include its volatility, the lack of regulation surrounding it, and rampant scams.
Before we get into this further and if you’re just starting out investing, you should avoid investing in cryptocurrency. This is a complex investment for anyone, let alone someone new to investing.
Even as an investor with decades of experience, I don’t like cryptocurrency or invest in it. When fellow Rulers ask me, “how safe is cryptocurrency” or “should I buy bitcoin” my answer is always NO.
Let’s get into why.
Risks of Crypto & Why I Don’t Invest In It…
These are the key risks of cryptocurrency and why I don’t invest in it or suggest Rulers to invest in it either.
Crypto is Volatile… Not In a Way Rulers Like
For one, crypto is volatile. Bitcoin, Solana, Dogecoin… you name it, there is no crypto that isn’t volatile. It’s true that in regards to the stock market, volatility can often work in our favor. But this is only true when we know the value of what we’re investing in.
What’s the value of Bitcoin? No one knows!
The prices of cryptocurrencies are purely based on speculation and hype. While many price swings in stocks are caused by speculation and hype, it’s still possible to determine the true intrinsic value of a company’s stock and know when it’s priced well above or well below its value.
When it’s priced well below its value, we know it’s time to buy, and when it’s priced well above its value, we know it’s time to sell.
Bitcoin and other cryptos aren’t only invaluable, they’re also unpredictable—so much that prices will rise to incredible highs only to fall to dramatic lows shortly after, and repeat this pattern day after day.
Trying to buy low and sell high is a game, and I don’t like to play games with my money when I’m trying to build long-lasting wealth.
Crypto is Unregulated
While cryptocurrency has been around for nearly a decade, it’s relatively new in the world of payment systems, and so, it isn’t regulated or insured.
Some people think this is cryptocurrency’s biggest asset. However, this could change in an instant. If any government tries to crack down on cryptocurrency as “currency” through regulation, it could crash and burn.
We’ve already seen China, as well as 8 other countries, ban all cryptocurrency trades in the country. What could it mean for your investment if this pattern spreads?
It also means that currently, at least, your investment in crypto is not protected through regulation if it’s lost. This is important because cryptocurrency is incredibly susceptible to cyberattacks, which I’ll cover in a bit.
Thus, this lack of regulation is one of the largest risks of cryptocurrency.
Crypto Scams are Real
Another threat to cryptocurrency investments is scams. One of the dangers of buying bitcoin is that it is “held” digitally and thus, can be stolen by talented hackers.
Owners of bitcoin and other coins have already been targets for thefts worth billions of dollars. If you already own crypto, beware of these red flags that a hacker is trying to tap into your digital wallet:
- A “legitimate source”, such as a government program, asks for a crypto payment via email
- You’re approached with a crypto investment opportunity that you didn’t ask for
- A person or advertisement on social media asks you to pay with crypto
Due to the newness of the crypto realm, Ponzi scheme scams have also taken place. This was the case with “OneCoin,” which was a false cryptocurrency that made off $25 billion!
Even if the founders aren’t intentionally trying to scam purchasers, such as with OneCoin, there’s no guarantee that a cryptocurrency company you invest in will succeed. As with many “new and exciting” industries, there is a lot of competition.
If you’re not incredibly careful with what you invest in and how you store your coins, you could be at a major risk of losing everything.
Cryptocurrencies Don’t Meet the 4Ms
The above reasons are likely enough to answer your question, is crypto safe?
But they aren’t even the primary reason why I don’t invest in crypto. I don’t like cryptocurrency because it doesn’t meet the 4 M’s, which, if you’re a Rule #1 investor, you know is the way we evaluate a company to know that it’s worthy of our investment and will grow our wealth.
I don’t even consider investing in something if it doesn’t meet the 4 M’s! These are Meaning, Moat, Management, and Margin of Safety.
Not one coin can meet these criteria.
They’re complex & difficult to understand their meaning.
They have nothing protecting them from the competition of other coins so they don’t have a good moat.
Crypto isn’t managed by anyone.
And, there’s no way to determine their intrinsic value— AKA the margin of safety. So, for me, I’m out.
Invest Confidently with Rule #1
So if cryptocurrency isn’t safe, where does that leave you?
Thankfully, there are way better opportunities to invest your money.
If you use the 4 M’s I mentioned above to evaluate companies, you can invest in individual stocks with incredible value and actually grow your money, rather than put it at risk.
When you invest this way, you can be confident in the companies you’re investing in because you understand them inside and out, they have an incredible competitive advantage, their management is sound, and you’ve calculated what they’re worth!
To learn how to do this, grab my Guide to the 4 M’s and get started today. Unlike investing in crypto, investing this way reduces your risk and positions you for an incredible financial future.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.