With all the excitement surrounding Bitcoin’s recent climb to over $100,000, many investors — new and experienced alike — are wondering if it’s time to hop on the crypto bandwagon.

But don’t move too fast. Crypto is highly volatile and not backed by business performance or concrete assets like cash flow, meaning if you’re not careful, you can lose your hard-earned cash. So it’s important to analyze the potential risks and rewards of buying crypto.

The pros of investing in crypto

Investing in crypto is something you really should take time to consider, including weighing the pros and cons. Here are some of the pros.

Potential for life-changing gains

Crypto, especially Bitcoin, is known for its rapid price moves, which have left many investors unfathomably wealthy.

In fact, a quick look at Bitcoin’s price history shows us that the token traded at $0.00099 per bitcoin in late 2009, when $1 equaled 1,309.03 bitcoins. If you would’ve invested $1,000 in Bitcoin back then, your investment would have been worth around $103 billion recently .

Crypto is trendy

Crypto has long been known as a somewhat exciting and tech-forward investment, so if you’re looking for some drama and want to be on the front lines of an asset that garners a ton of attention and has the potential for huge price appreciation, consider crypto.

Since its inception, crypto was meant to be a digital asset that didn’t need a middle man or financial institution to manage and keep track of transactions, making it super popular among folks who believe that financial transactions shouldn’t rely on a middle man.

More recently, President-elect Donald Trump’s victory and his support of the crypto market have boosted prices. Bitcoin is up 126% year to date, and it hit a new all-time high of $102,000 in December .

U.S. regulators have also been relaxing requirements for specific ETF models. In January 2024, the Securities and Exchange Commission approved several Bitcoin ETFs, boosting crypto’s popularity among everyday investors and making it easier to invest in the digital asset. In July, Ethereum ETFs were also introduced.

Crypto is a non-correlated asset

Crypto is a non-correlated asset, meaning its prices don’t follow the ups and downs of other investment vehicles. Stock prices , on the other hand, tend to fluctuate based on what’s going on in the broader economy, and they also react to company news, quarterly earnings and even other stocks’ price movements.

That’s not to say crypto isn’t sometimes affected by broader economic conditions, too. Investors’ appetite for riskier investments like crypto, for example, waned in 2022 when the Federal Reserve was hiking interest rates to combat inflation. Investors instead turned toward investments perceived as being safer, like gold , value stocks and TIPs (Treasury Inflation-Protected Securities).

While crypto’s non-correlated nature can be a drawback when stocks are rallying, it can provide some diversification in your overall portfolio.

Crypto operates in an evolving sector of technology

Crypto operates on the blockchain , which essentially records the flow of information (including transactions) and, by design, aims to be transparent (provided you can access the blockchain database holding that data).

This type of decentralized finance ensures information is stored securely, while also maintaining a ledger that prohibits changes after a transaction is entered, creating a clear audit trail. Many crypto supporters believe that this digital-ledger type of technology is the future of finance.

The cons of investing in crypto

For all of the reasons you may be excited to invest in crypto, there is another side to digital coins. Here are some things to keep in mind before investing in digital assets.

Elevated risk of total losses

Sometimes it can be hard to wrap your head around just what exactly makes crypto prices move up and down. At the end of the day, it’s important to know that crypto prices are only based on what others are willing to pay for the token. That means crypto isn’t backed by hard assets like cash flow or underlying business performance.

Prices are only based on hype and lots of price fluctuations stem from discussions on social media platforms like X, Reddit and Discord.

While some investors have been able to ride the highs that are created by the hype on these platforms, many investors have also lost money — and a lot of it. Depending on what type of coin you invest in, you could lose everything.

Crypto scams

Another con are cryptocurrency scams . These scams can take many forms, and knowing what they are can help keep your money and identity safe. Here are a few:

Ponzi schemes: In this scenario, you’re rewarded for getting more people to invest in a specific cryptocurrency. Any money brought into the scheme is then used as payouts for people who are higher in the scheme pyramid.
Rug pulls: This scam is when the founders of a cryptocurrency disappear one day and take all their tokens (attached to your money) with them.
Pump and dumps: In this instance, creators of the coin drive up the popularity and price. Then, insiders cash out their tokens, dumping them on the public. Traders are left with worthless coins.

Furthermore, while not exactly a scam, several crypto exchanges have collapsed and left investors with nothing. Investors are best served by sticking to well-known and reputable crypto exchanges that have to comply with federal crypto regulations, such as Coinbase or Binance .

Extreme volatility

Crypto prices are extremely volatile. This is because they lack the backing of hard assets and cash flow, and are really only supported by what others are willing to pay for the token.

These price swings are exacerbated by things like social media, crypto scams and a changing regulatory environment.

For example, early during the COVID-19 pandemic, Bitcoin’s price plunged from about $9,000 to $4,000. Fast-forward to the end of 2020, and Bitcoin had soared to $29,000, showcasing that even the biggest, most well-known cryptos experience wild price movements.

Bottom line

So should you invest in crypto after weighing the pros and cons? The short answer is it depends. Given the cons above, it’s easy to see crypto is a highly speculative and volatile investment. If you do want to gain some exposure to crypto, consider investing in spot Bitcoin or Ethereum ETFs . These give you the opportunity to invest in crypto without having to buy individual coins. All in all, take the time to weigh the pros and cons, as they can help you decide which crypto to invest in — if any — and only invest what you’re willing to lose.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.