Risks and benefits of cryptocurrency
There are both risks and benefits associated with cryptocurrencies. It’s crucial to educate yourself before deciding to determine if you’re comfortable with the risks. Here are a few considerations to get you started—note, this is not a full list.
Risks of cryptocurrencies
Volatility
The price of crypto has proven to be extremely volatile, meaning it changes quickly and frequently showing high highs and low lows. While trends can change, there are many factors that contribute to the price fluctuation.
Regulatory uncertainties
Government regulations around crypto are constantly evolving and may differ based on where you live. Regulations could impact how you use or access your crypto, which can cause volatility and uncertainty. But since crypto is still new, it may take time for policymakers to establish clear, consistent guidelines.
Securities and scams
Not all cryptocurrencies or trading platforms are created equal. Some platforms are more secure than others, and some newer coins could be a higher scam risk than those more established. There is also no protection or insurance for lost or stolen cryptocurrencies, so always research thoroughly before taking action.
Technical
There are two main ways to store your crypto: privately in a non-custodial wallet on a personal device, like an app on your phone or laptop or in a cold storage wallet, or using a third-party custodian, like Fidelity Digital Assets® who offers Fidelity Crypto®.
When storing privately, you are solely responsible for the safety and security of your crypto. If you lose your private key, your hard drive crashes, or a virus corrupts your wallet, you may lose your funds entirely.
Did you know?
Benefits of cryptocurrencies
Independence
Cryptocurrencies were designed to be decentralized without the control of a single government or central bank. A user may have unrestricted access to their coins, but they also have full responsibility for keeping them safe.
Accessibility
Crypto can be easily accessible to everyone around the clock, even those without access to traditional banking. Only an internet connection and a crypto wallet are required.
Lower fees and faster time
Crypto transactions can have lower fees and faster transfer times than some traditional bank transactions. For example, crypto can potentially avoid high fees associated with global wires and be accessible within minutes, which is a big difference from a standard 24-to-48 hour bank wire. However day-to-day bank transactions, like depositing checks or withdrawing cash are quick and have no fees.
Transparency
Cryptocurrencies operate on blockchain technology that is fully public and immutable, meaning it cannot be changed, manipulated, or deleted, and every transaction can be seen or tracked at any time.
Mainstream support
As cryptocurrencies grow in popularity, mainstream financial institutions and businesses have begun to show interest by offering and/or accepting cryptocurrencies. However, unlike traditional finance that has been around for 300+ years, cryptocurrencies are still in their infancy phase and their future remains uncertain.
High return potential
Although cryptocurrencies are highly volatile, they have also yielded high returns in the past depending on when purchased. But it’s important to understand that past performance never guarantees or suggests future results.
Did you know?
The bottom line
Not all coins or platforms are created equal. Crypto is a new, highly volatile asset class, and you need to be comfortable with the risks before taking action. Educate yourself thoroughly before deciding and only invest if you are prepared to lose the entire investment.