Cryptocurrency has become the reality of our time, another investment tool in which you can invest money. There is a chance to make good money on cryptocurrency, but investing money in assets of this category involves certain risks.
Let's try to understand what cryptocurrency is, and whether it is worth buying for beginners and experienced investors.
What is cryptocurrency
A cryptocurrency is a digital asset that is accounted for in a decentralized manner, that is, independent of any regulator or one of the participants. It does not exist in any tangible or electronic form. It is just a number, a notional unit of account recorded behind a virtual wallet. And operations with such numbers are protected by some cryptographic method.
We will not go into technical details, we will only note what is important for investors. Possession of this or that amount of cryptocurrency does not give any guaranteed rights. It does not provide the depositor with periodic coupon payments like bonds do. It does not confirm the right to participate in capital like stocks. In essence, cryptocurrency is just a record, and nothing more.
What cryptocurrency is used for
Cryptocurrency can be used in two ways.
As a means of payment, which since 2021 is prohibited to do with it in Russia on the basis of the law "On digital financial assets," which came into force on January 1.
As a tool for accumulation and investment.
Of course, in fact, cryptocurrency is quite widely used as a means of payment - by those for whom the law is not written, that is to serve the black market.
On the other hand, not all countries are not allowed to pay with cryptocurrency. Otherwise, it would probably lose a significant part of its value.
What does the price of cryptocurrency depend on
Since a cryptocurrency is just an electronic record with no real assets associated with it, its quotes depend solely on how it is valued by market participants themselves, on their belief in its purchasing power and expectation of further changes in its status.
Cryptocurrencies are subject to serious volatility. At a minimum, their value is affected by the following factors:
Regulatory statements, for example, plans to combat money laundering through cryptocurrencies lead to a drop in quotations.
Buying and selling by major investors, and their comments. For example, the purchase of this cryptocurrency by Ilon Musk led to the growth of Bitcoin.
The situation in the infrastructure that serves cryptocurrency trading. Bankruptcies of exchanges, frauds in the market lead to a decrease in quotations. On the contrary, the creation of new sites create conditions for their growth.
Changes in the market of devices necessary for mining. The shortage of video cards, as well as the necessary electricity - can also lead to a rise in the price of cryptocurrencies. While the emergence of new technologies, on the contrary, can make it more affordable.
And so on. However, at the same time, it is worth noting that to invest in cryptocurrencies, you do not need to analyze the balance sheets of companies, watch the profit and loss accounts of certain companies, follow the quotations of commodity markets and so on. Because cryptocurrency has no real assets on which it seriously depends.
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