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3 Reasons to Dip Into Crypto in 2022 — and 2 Reasons Not To

3 Reasons to Dip Into Crypto in 2022 -- and 2 Reasons Not To
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From the sidelines, I have noticed that cryptocurrency prices have risen and fallen dramatically over the past year. But this is now Bitcoin (CRYPTO: BTC), the most popular cryptocurrency, is down 35% from its high in November 2021, you might be wondering if there is a chance behind this volatility.

Is 2022 the year you will dive into cryptocurrency? This is a question only you can answer. There are good reasons to invest in cryptocurrency right now – and there are good reasons not to. Here are five positive and negative factors to consider when deciding what role crypto could play in your wallet this year.

1. Cryptocurrencies are gaining momentum as a form of payment

Cryptocurrency can gain and lose value over tides from investor demand alone. But the biggest promise of cryptocurrencies is to become a globally accepted method of payment for goods and services.

Image source: Getty Images.

This shift, from speculative assets to functional currency, is well underway. The list of companies that accept Bitcoin and other cryptocurrencies is growing. Top MicrosoftAnd Overstock.com, and e-commerce company Rakuten I’ve accepted Bitcoin for years. lately, PayPalWhole Foods Market (part of Amazon), Visa, And Starbucks Join those ranks.

2. Exchanges are developing

The exchanges that facilitate cryptocurrency trading can be centralized, decentralized, or a combination of the two. Central exchanges are third parties that oversee traditional transactions for crypto-to-crypto money transfer or crypto-currency transfer. Queen Piece (NASDAQ: currency)One of the most popular cryptocurrency exchanges.

There is no intermediary in a decentralized exchange – transactions occur directly between peers via an automated token.

There are pros and cons to each approach. Centralized exchanges provide customer support, but they are more vulnerable to hacking. Decentralized exchanges are more secure because they do not have a single point of failure. Unfortunately, it is also difficult to use a decentralized exchange.

Experienced crypto users support the decentralized model, but beginners still need an easy-to-use model. Exchanges evolve to serve that full range of needs. Centralized exchanges are decentralizing and upgrading security, and a new crop of hybrid exchanges, such as Korrex, are also in development.

These trends should benefit users and the industry’s reputation in the future.

3. Stablecoins provide liquidity

Another crypto development is stablecoin – a cryptocurrency that is backed by reserves to keep prices stable. Where the Bitcoin trendline looks like a serpentine snake in the world, the stablecoins are designed to maintain their purchasing power.

You won’t get rich buying and selling fixed-value coins, but that’s not really the point. Cryptocurrency investors use stablecoins for liquidity. They can store value in stablecoins knowing that they should not become worthless tomorrow or next week. When they need funds to send payments or purchase other crypto assets, they can quickly access that value from their stablecoins.

PayPal is developing a stablecoin linked to the US dollar. This can provide an easy entry point for new crypto investors, especially if PayPal pays interest on stablecoin deposits.

4. Encryption does not act like a property rights

An optimist investor sees an opportunity in a downturn in the stock market. The logic goes like this: When stock prices generally fall, you can buy high-quality stock for less — even when there’s no fundamental change in the companies’ ability to generate value.

Unfortunately, it is dangerous to take the same view of cryptocurrencies. Yes, the value of Bitcoin rose last year to nearly $70,000. And yes, the current value of Bitcoin is now hovering in the low $40K range. But you should not interpret this to mean that Bitcoin is for sale. It just means that Bitcoin has lost its value since last November. If or when Bitcoin will recover is unknown.

5. Regulatory expectations are uncertain

Regulation can be good or bad for cryptocurrencies. Hardliners argue that overregulation will squash innovation and alienate those who value the privacy of the crypto economy. Others say the regulation legitimizes encryption and, as such, will encourage greater adoption.

Regardless of where your opinion falls on this spectrum, the future of crypto regulation – and its implications – are yet to be determined. If you decide to invest in cryptocurrencies in 2022, this is another risk to consider.

Investing in Cryptocurrencies in 2022

Cryptocurrency adoption is on the rise, which bodes well for cryptocurrency users and investors. But there are also uncertainties at play that can add to the already high volatility of crypto assets.

If you want to plunge into cryptocurrency in 2022, check your predictions – and be prepared for a road trip.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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