Many people think that buying crypto is an investment for the future, but this is only partially true. Buying crypto is more speculation than an investment. This blog post explains to you why this is the case so that you don’t lose money.
The Definition of Investment
In order to understand the difference between an investment and speculation, we have to know the meaning of the words, and here we are going to start with the definition of an investment.
According to Google, an investment is “an action or process of investing money for profit”.
This means that money got invested to receive a fixed amount of money back. A great example of this is dividends, which are paid when an investor buys stocks. Dividends are paid every year no matter what, and the investor receives a fixed amount of money every year.
Here are other examples for investments:
- Real-Estate with paying renters
- Staking cryptocurrencies
- Interest of the money in your bank account (This is a bad investment with the current interest)
The main point that I want you to understand here is that an investment gives you a fixed amount of money back. There is no luck involved that could hinder you from receiving your money.
The Definition of Speculation
The other word that we have to understand is speculation. If you google speculation, you will receive the following answer. Speculation is “the forming of a theory or conjecture without firm evidence” and “investment in stocks, property, etc. in the hope of gain but the risk of loss”.
This means that speculation is an “investment” into something that has the potential to go up in value, but it is not sure if this will ever happen. There is of course the possibility that something you invested in could go up in value. Nevertheless, in the end, it is all hope because there is no fixed amount of money you will receive no matter what happens.
Here are examples for speculative Investments:
- Buying crypto
- Stocks with no dividends (Tesla, Amazon, Netflix)
- Real-Estate that does not cover all the expenses with rent
- Investing in start-ups
- Investing in overpriced education
Appling the new Knowledge to crypto
Investing in crypto is mainly speculation that the price will go up in the future. There is of course a lot of information like the bitcoin halving out there that says that crypto is going to increase its value in the future, but this is all speculative.
The only thing you can do is to accumulate as much information as possible to minimize your risks. However, even when you minimize your risks properly, you are still speculating.
So if anybody tells you that this crypto asset will for sure increase in value. Then you should definitely question his or her statement because it is still a speculative investment.
Should you still invest into crypto?
Cryptocurrencies have gone up in their value for the past 10 years, and their blockchain technology has the potential to change the world. Cryptocurrencies have also a limited number of coins, which makes them resistant to inflation.
I would therefore still recommend buying crypto because it is a good diversification, and it is the future technology. Crypto can also go up significantly and if you have some money to lose you could potentially get lucky and 10x your money. However, you have to be aware that investing in crypto is speculative, and you should only invest money that you can lose.