The past year has been a wild ride for cryptocurrency, with prices reaching record highs as well as devastating lows.
While prices have been on a downhill slide for the past few weeks, that could make it a smart time to invest. Bitcoin (BTC -0.58%), for example, is currently priced at just under $43,000 per token -- down from its all-time high of close to $70,000 per token in November. If you've been waiting for a more affordable time to invest, now may be the right moment.
That said, cryptocurrency isn't right for everyone. While there are a few reasons to consider buying crypto in 2022, there's also one good reason to avoid it.
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Why consider investing in crypto
1. Crypto has more real-world utility than ever
In the past, cryptocurrency prices were based solely on speculation. Crypto itself had no real uses, and investors bought into it only because they believed it had potential.
That's starting to change, however, as major cryptocurrencies like Bitcoin and Ethereum (ETH -1.34%) are developing real-world utility. Bitcoin is becoming more widely accepted as a form of payment, for example, and it recently made headlines for becoming legal tender in El Salvador.
Ethereum has also been gaining traction, particularly when it comes to decentralized finance (DeFi) and non-fungible tokens (NFTs). NFTs were one of the biggest buzzwords of 2021, and because most of them are hosted on Ethereum's blockchain, Ethereum could benefit from the recent NFT craze.
DeFi has also exploded over the past year. Currently, there's close to $94 billion locked up in DeFi projects, up from around $31 billion one year ago. Ethereum hosts the vast majority of DeFi projects, so the more that sector expands, the more Ethereum could grow as well.
2. Major cryptocurrencies are getting stronger
While new cryptocurrencies are being developed by the day, the major players in the industry are also becoming stronger and solving issues that have been holding them back.
For instance, cryptocurrency has often been criticized for being extremely energy-intensive and harmful to the environment. Its transaction speeds are also slower than more traditional forms of payment, making scaling difficult.
However, some cryptocurrencies are working on updates to solve these problems. Ethereum, for example, is currently transitioning to Ethereum 2.0. This will not only make it faster and more affordable to use, but it will also require around 99.95% less energy. Cardano (ADA -2.24%) is also expected to launch its Hydra update either later this year or in early 2023, which will boost its transaction speed significantly.
3. There are clearer leaders within the crypto space
One of the more challenging aspects of investing in cryptocurrency is choosing which investments are right for you. There are thousands of different cryptocurrencies, and not all of them are smart investments.
However, as we head into 2022, there are a few clear leaders within the crypto space, including Bitcoin, Ethereum, Cardano, and Solana (SOL -1.32%). While these cryptocurrencies aren't guaranteed to succeed (and they won't all be the right investment for everyone), they each have unique strengths that make them stronger than many other cryptocurrencies out there.
Why to avoid crypto in 2022
1. It's still highly speculative and risky
Although cryptocurrency is more popular than ever, it's not the right investment for everyone. The biggest reason to consider avoiding this investment is simply that it's risky.
Crypto has become more mainstream, and major cryptocurrencies do have more real-world uses than in the past. However, crypto in general is still highly speculative. It's uncertain whether it will ever become widely adopted, and some skeptics believe we're in a bubble that's about to burst.
The truth is that nobody knows what's in store for crypto. It could potentially change the world, but it could also crash and burn.
If you're a risk-averse investor, it may be best to avoid cryptocurrency for now. At the very least, only invest money you can afford to lose, and make sure only a small percentage of your portfolio (generally 5% or less) is allocated toward crypto to limit your risk.
Cryptocurrency has had a rollercoaster of a year, and nobody knows for certain what the future holds. While it is a risky investment, it also has tremendous potential for growth. It won't be the best investment for everyone, but if you're willing to take on higher levels of risk, it could be right for you.
Katie Brockman owns Bitcoin and Ethereum. The Motley Fool owns and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
