Is cryptocurrency an investment? Some think that is a dumb question, but there is a big difference between a traditional type of investment and a different type of investing known as speculation. What you don’t know can definitely hurt you in both worlds–do you know the difference?
I have a family member who was badly burned by a lack of understanding about the rules of investing. This person lost roughly $20 thousand because they did not fully comprehend the rules of online trading, especially where investment behavior that looks like day trading is concerned.
A year or two after this incident, I got interested in investing myself–the same kind of investing my family member was involved in. I purchased six different books trying to learn about the ins and outs of online trading–especially day trading and related issues. But I could not find any rules that addressed the issues that led to my family member’s financial loss.
I called a colleague of mine who is a certified investment planner and picked her brain–she told me that the detail I was missing is not something investment writers generally talk about when trying to sell their books about day trading and other popular investments.
And that detail involved the complex rules about investors who buy certain stocks in specified ways and whether or not you can hang onto those stocks overnight in hopes that they will improve the next day. The specific details are not as important as the notion that my family member’s ignorance of those rules DIRECTLY resulted in a major loss of investing capital.
Is Cryptocurrency An Investment?
And that leads us back to cryptocurrency. Some people don’t define their activities in cryptocurrency trading as investments–they view them as speculation instead. What is the difference? Forbes.com defines it thusly:
“An investment is an asset or item acquired with the goal of generating income or appreciation in the future. Speculation is a financial transaction that has a substantial risk of losing all value, but with the expectation of a significant gain.”
The comparatively stable nature of investments (there is still a risk of loss of capital with investments) makes them less risky compared to speculation. Some people enjoy speculation, taking risks, and playing the game. Others must be more choosy with their investment funds, managing risk, and avoiding putting money in fads or short-term trends.
Should you invest in cryptocurrency? If you are risk-averse, it may be best to take the advice of financial planners and put your funds into more traditionally stable markets. But those who can afford the risk may find cryptocurrency to be a rewarding and profitable experience.
But knowing the rules of the game and understanding your role in the crypto process is key. Don’t invest money in cryptocurrency without doing your due diligence and researching how Bitcoin and others operate and require you to operate when buying, selling, or trading.