Since digital currencies took the world by storm, the way we perceived transactions changed forever. Besides the newness of digital improvements on how people can use money, this technical advancement also raised a few questions regarding safety and sustainability. Investing in cryptocurrencies has been the reason for many controversies. While experienced investors stated cryptocurrencies are the future of transactions, experts warned users that the crypto market is highly volatile and can expose people to financial dangers.

However, cryptocurrencies can also provide reliability, but there’s a long road to that. Although it’s impossible to get rich overnight, if you want to ensure a passive income for the future, you can try investing in Bitcoin and Ethereum since these are the safest choices at the moment. The Ethereum price may fluctuate at times, but due to the fact it’s proven reliability since its release, as long as your portfolio is balanced, you’re less exposed to certain risks.

But why are experts concerned about people’s behavior regarding cryptocurrencies? Let’s find out.

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What history tells us

Looking back on Bitcoin’s evolution, for example, experts notice how its price has spiked a few times, followed by a considerable crash. For example, back in 2017, when Bitcoin’s price reached nearly $20,000, the price collapsed on the same day by a third of its value, and in 2018, it got to only $3,122. Although this significant change meant a big return for some investors, others have experienced astronomical losses.

But Bitcoin is not the only cryptocurrency suffering tremendous highs and lows. The crypto market is highly volatile and cannot provide investors with security when it comes to their assets. This is why experts advise people to invest the money they can afford to lose. It is a golden rule in investing that can help you protect your assets from risk and volatility.

At the same time, experts encourage investors to start small and hold cryptocurrencies long-term, especially Bitcoin and Ethereum. These two are considered to be coins or altcoins because they use their own independent blockchain. In addition to altcoins, you also need to hold tokens, such as Tether or Polygon, because they’re easier to transfer and provide cheaper rates, helping your portfolio become stable.

The safety of digital wallets

Another expert’s concern warns us about the safety of digital wallets. Even though famous cryptocurrencies like Bitcoin are almost impossible to be hacked because blockchain technology is virtually impenetrable, investors are still exposed to fraud or security risks regarding their digital wallets.

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That’s because people tend to be unsuspecting of their being at risk. After all, making transactions on blockchain technology is anonymous and doesn’t require much personal information. However, bitcoin and most cryptocurrencies have a public ledger, which is an open-access network that anyone can join at any time ―even scammers. Crypto scams are quite common because they promise users a small number of cryptocurrencies in exchange for giving their information. Still, you must be wary of these people offering you free bitcoins. Experts recommend that the best way to hold your cryptocurrencies is through a trusted brokerage because they provide a good security protocol and quick application to protect.

The bitcoin bubble

In the cryptocurrency market, there’s this term of a bubble that showcases how the price of a cryptocurrency gets inflated contrary to its value. There have been a few booms and crashes of bitcoin in the past years when its value peaked considerably and then went down in a matter of hours or days. Some say that the Bitcoin bubble is increasing, and we’ll see more of these ups and downs in the future, but it’s not the only asset prone to economic bubbles. Since the cause for these bubbles is usually either excess in market liquidity or changed investor sentiment, all investments, digital or not, are at risk of experiencing a speculative bubble, just as the Japanese asset bubble from the 80s.

This phenomenon raises many questions about the safety of cryptocurrencies because although they’re designed to provide different and better ways for people to make transactions, they’re also affected by economical issues and social events. But because there’s a demand for cryptocurrencies to be widely accepted by all businesses and worldwide people, it’s normal they’ll be affected by real-life events, which makes them another asset similar to fiat money.

Cryptocurrencies as protectors against inflation

Can cryptocurrencies be used against inflation if they’re so unstable to volatility? The answer depends. Some experts state that given that most cryptocurrencies have a maximum coin supply, they can be great protectors of purchasing power, just like gold and other similar assets. But since crypto is volatile, it can also go down in value, which leads to financial losses.

At the same time, there’s not enough government regulation on how cryptocurrencies are taxed. Therefore, people shouldn’t have much hope when it comes to crypto acceptance because, for the moment, cryptocurrencies are nothing more than a store of value and cannot be used as protection from inflation, no matter what some investors say.

That’s also because some cryptocurrencies choose not to have a limited coin supply, just like Ethereum, which seems to be a deciding factor when it comes to investors selecting an investment. Although an unlimited supply causes an unstable value, not all cryptocurrencies with maximum coin supply can be a reliable solution for the future.

Overall, there’s not enough evidence on the reliability of cryptocurrencies to be more efficient against inflation than fiat money. Unfortunately, both are ruled by simple economic rules, and as long as there’s no revolutionary development soon, cryptocurrencies will still be prone to risks, just like ordinary currencies.

Bottom line

Investing in cryptocurrencies can take some work. However, the crypto market is not that different to the stocks one, meaning that it’s not that much of an evil thing to do. But like all types of investments, people need to be careful of how much money they put into this because risking too much for high-return investments has been proven not to be worth it.