What are the risks of its value falling drastically? What would it depend on?
It should be clarified that like any investment there is no guarantee of success nor that a guaranteed cryptographic value can always be retained. Competition is fierce among thousands of blockchain projects, and only a small number of projects will ultimately prosper. Bitcoin and Ethereum are popular projects that have offered great profits but there are also cases such as the recent fall of Terra UST “a theoretically stable stablecoin” that has caused confidence in cryptocurrencies to drop and the panic effect triggered sales for fear of the extension of that scenario to other cryptocurrencies that could also disappear.
But speaking of specific risks, there are several factors that make cryptocurrency not entirely safe, at least currently, while other signs are emerging that cryptocurrency is here to stay. Cryptocurrency exchanges, more than stock exchanges, are vulnerable to being hacked and becoming targets of other criminal activities. These security breaches have caused considerable losses for investors whose digital currencies have been stolen.
Despite the inherent risks, cryptocurrencies and the blockchain industry are steadily going from strength to strength. A very sophisticated financial infrastructure is being built and investors are increasingly able to access institutional grade custody services. Professional and individual investors are gradually getting the tools they need to manage and safeguard their crypto assets. While other factors still weigh on cryptocurrency risk, the increasing pace of adoption is a sign that the industry is maturing.
In the balance between risk and profit, to what extent is it advisable to organize an investment portfolio that includes cryptocurrencies?
Many cryptocurrencies like Bitcoin and Ethereum are launched with lofty goals, which can be achieved over long-term horizons. While the success of any cryptocurrency project is by no means assured, if a cryptocurrency project achieves its goals, early investors could be greatly rewarded in the long run. However, it is important to stress that for any cryptocurrency project, achieving widespread adoption is necessary for it to be considered a long-term success.
In addition to the benchmark cryptocurrency such as Bitcoin, what other cryptocurrencies should be taken into account if you want to invest in this market?
Ether is the native currency of the Ethereum platform and investors who wish to gain portfolio exposure to Ethereum can purchase it. While Bitcoin can be seen as digital gold, Ethereum is building a global computing platform that supports many other cryptocurrencies and a massive ecosystem of decentralized applications (“dapps”).
The sheer number of cryptocurrencies built on the Ethereum platform, combined with the open source nature of dapps, creates opportunities for Ethereum to also benefit from the network effect and create long-term sustainable value. The Ethereum platform allows the use of “smart contracts”, which are executed automatically based on the terms written directly in the code of the contracts.
Both individual investors and companies seek to gain direct exposure to cryptocurrencies, considering them safe enough to invest large sums of money.
Partner of the consulting firm Baker Tilly.
Source: Ambito
