investment strategy

Is Crypto Safe?

Are cryptocurrencies safe to invest in and use? Learn more about volatility, crypto scams, crypto security and more.

Last updated:

May 12, 2022

EarlyBird helps parents, family, and friends collectively invest in a child’s financial future. Learn more.

What You'll Learn

Cryptocurrencies like Bitcoin and Ethereum are all over the financial media these days. The huge run-up in crypto prices over the past few years has drawn millions of new investors into the space. 2021 data showed that approximately 13% of Americans traded crypto in the preceding 12 months.

But crypto is a confusing world, especially for newcomers. One of the most common questions is a simple yet important one — is crypto safe?

As a new asset class, crypto is not as established or regulated as assets like stocks or bonds. But with the right approach, cryptocurrency can be a safe investment as part of your overall investment portfolio.

To explore the safety of crypto in-depth, we interviewed Jordan Wexler, CEO and co-founder of EarlyBird.

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Would You Recommend Investing in Crypto?

“The idea is to have a diversified portfolio that has multiple different types of investments and to analyze how much you’re putting into these different assets”, says Jordan.

In other words, it’s important to invest in a variety of assets in order to balance risk and reward. Most experts recommend a mix of stocks, bonds, and perhaps alternative assets such as cryptocurrencies. Investing in crypto can be a good idea — but investing only in crypto is risky.

Of course, the assets you choose depend on your goals and your investment timeline. In general, the longer you have before you need to access that money, the more you can afford to take a bit more risk with your investment choices.

Balance of risk and return
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“We believe that [crypto] is a very important part of the portfolio makeup for a child. Of course, people are worried about the volatility of crypto — but what we look at when we think about investing is what is the long-term value. These investments are not for tomorrow or next year — these investments are for 15 to 20 years from now”, Wexler explained.

Crypto for kids is a long-term investment because the children likely won’t access the money for a decade or more.

It’s also important to examine your reasoning for investing in any asset. Do you believe in its long-term potential?

“What is the underlying technology that crypto is based on? And do you believe in it? Blockchain technology is what powers crypto — and we deeply believe…that blockchain will continue to have an impact on transforming society, industries we work in, and how we operate in day-to-day life,” says the EarlyBird CEO.

If you believe that crypto (or blockchain technology) will play a role in the future, it may make sense to invest a small portion of your child’s portfolio in it.

Is Crypto a Good Long-Term Investment, or Is It Better for the Short-Term?

“It’s very important to understand your time horizon. How long do you have until you need to touch this money? And that’s different for everyone—– for a 16-year-old that is going to college, you may need cash soon. You might not want to put it in a risky investment,” Jordan states.

“On the other hand, investments for a young child may have 10, 15, even 20 years to grow before that money is needed,” he adds. “In this case, you can afford to take a bit more risk with your investment strategy. We believe crypto as an investment hopefully can be for the long-term time horizon… the long-term value and gains will be there if you hold onto those investments for the long-term.”

Is Crypto Secure? What Security Risks Should I Be Aware Of?

“Crypto is innately the concept of a ledger. Every single transaction is established on this ongoing ledger [which is publicly accessible]. This is powered by blockchain technology and cryptography”, Wexler notes.

Blockchain powers crypto
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The underlying technology of crypto is quite secure — but there are potential risks associated with the storage of crypto-assets.

“People hold their crypto in crypto wallets. Crypto wallets, like anything, can be hacked. It’s very important to be very careful. Your email could be hacked — your bank account or credit card could be hacked. It’s really no different — the risks that all types of digital assets and investments or platforms have.”

“On EarlyBird, we’ve partnered with Gemini — a world-class crypto exchange. They power our wallet. They are known for extremely high security measures that make sure people can feel much more safe in their investments”, says Wexler, stressing the importance of seeking out the best partner for your crypto investments.

If you stick with a reputable exchange or custodian, you don’t need to worry about crypto security as much. If you choose to store your coins using a hard wallet or buy off-exchange, you will need to do your due diligence to ensure you’re operating safely.

What Are Some Of The Other Risks of Investing in Crypto?

“When we say cryptocurrency, it’s a broad term — there are many types of coins that are minted and invested in. For example, you have Bitcoin (BTC), Ethereum (ETH), and thousands of other coins that have been minted in various ways”, Wexler explains, noting that cryptocurrency is an evolving industry and technology.

Basics of cryptocurrency
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Bitcoin and Ethereum are the most popular cryptocurrencies. Their prices can still be volatile, but they have a long history of relative stability, as well as widespread societal adoption.

Then there are thousands of so-called “altcoins.” These typically have less widespread adoption and a shorter history.

“Altcoins are a whole lot more risky. There’s a lot of get-rich-quick schemes. We deeply recommend doing your research on any investment you make, particularly any crypto investment you make,” Wexler warns.

“The highest risk is investing in altcoins and the volatility that comes with that.”

How Can I Invest in Crypto Safely?

“Absolutely use one of the world-class platforms that take safety seriously. Earlybird is one of those if you’re looking to invest in crypto for your child — we are powered by Gemini. Coinbase and FTX are two other great ones. Never go to some unknown exchange, and be cautious of any suspicious offers or pitches”, reminds Wexler.

EarlyBird Crypto powered by Gemini

If you’re interested in investing in crypto for the children in your life, EarlyBird Crypto is the platform for you. EarlyBird makes it simple to set up a custodial investment account on behalf of a child and then start investing in a balanced portfolio of stocks, bonds, and crypto-assets like Bitcoin and Ethereum.

Crypto can be safe to invest in as long as you take the necessary precautions. That includes sticking with a reputable exchange or platform to buy and sell crypto. It’s also wise to stick to more established cryptocurrencies, like Bitcoin and Ethereum.

You can also look into alternative crypto investing strategies, such as cryptocurrency ETFs.

Finally, it’s wise to keep crypto-assets to a small percentage of your overall portfolio. By diversifying into stocks, bonds, real estate, and crypto, you can smooth out the bumps along the road in your investing journey — and reduce your overall risk.

I’ve Heard Crypto Is Volatile — What Does That Mean?

Volatility refers to a tendency for asset prices to change rapidly or drastically. An asset that is volatile could experience large spikes and crashes in its value on a day-to-day or week-to-week basis.

Wexler explains, “Volatility is driven by investor behavior — how people are thinking about a specific asset and then the actual trading volume (buying and selling) that is actually happening. Volatility is a very natural thing [among most asset classes].”

Volatility exists in most asset classes to some degree. It is true that crypto tends to have higher volatility than bonds or even stock market index funds. Crypto’s daily volatility can be extreme.

However, if you zoom out to view crypto’s performance over long periods of time, you can get a better perspective on the value of investing in it.

In other words, looking at day-to-day movements can paint an inaccurate picture of cryptocurrency as a long-term investment. Investors should understand the long-term value proposition of crypto — while keeping in mind its tendency for significant price swings in the short term.

Conclusion

Investing in cryptocurrency can be safe as long as investors take the necessary precautions to secure their holdings. For more details, check out this full introduction to cryptocurrency.

No investment is guaranteed, however — crypto-assets can certainly lose value. For this reason, it’s wise to build a diversified investment portfolio consisting of several different asset classes.

Interested in investing in crypto on behalf of a young child? Check out EarlyBird Crypto, an investment app that makes it simple for adults to invest in the children they love.

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This page contains general information and does not contain financial advice. All investments involve risk. Any hypothetical performance shown is for illustrative purposes only. Actual investment performance may be different for many reasons, including, but not limited to, market fluctuations, time horizon, taxes, and fees. Please consult a qualified financial advisor and/or tax professional for investment guidance.

Author

EarlyBird Team

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INVEST EARLY, GROW TOGETHER
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INVEST EARLY, GROW TOGETHER
Download EarlyBird today and start investing in your child’s tomorrow.
INVEST EARLY, GROW TOGETHER
Download EarlyBird today and start investing in your child’s tomorrow.
INVEST EARLY, GROW TOGETHER
Download EarlyBird today and start investing in your child’s tomorrow.
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