Cryptocurrencies are a relatively novel asset class that have only recently come onto the scene; having only existed for about ten years and continuing to gain in popularity. They offer huge potential returns at reasonable risks – providing potential for high returns with minimal downside potential.

One of the primary risks associated with cryptocurrency investments is their extreme volatility. Cryptocurrency prices have experienced sudden, dramatic swings between highs and lows over their short history; being unbacked by any physical asset means their prices are determined solely by supply and demand; investors have both lost and gained fortunes quickly in this new field of investment.

Security risks also remain, such as cryptocurrency hacks that make recovering stolen funds challenging. Furthermore, there remains uncertainty as to how the Securities and Exchange Commission will treat crypto assets which could have serious ramifications on their future value.

Supporters of cryptocurrency hold that it offers an alternative to fiat currencies like the U.S. dollar and euro, in that it’s not controlled by central banks and cannot be devalued through inflation like fiat currency can. They’re often referred to as “digital gold”.

Some investors are attracted to cryptocurrencies because their prices have seen dramatic gains since being first released for purchase, making these assets attractive investments if purchased at just the right time.

However, keep in mind that an initial coin price does not necessarily represent its long-term worth. Many tech fads and commodities have seen market bubbles that were detrimental to those caught up in them.

Cryptocurrencies don’t even bear the same taxation treatment as traditional investments: in the United States they are classified as property, so when selling them you will owe capital gains taxes.

As is true with most things in life, there’s no guarantee that cryptocurrencies will ever become mainstream forms of payment or have real world applications. While some might see it as inevitable, others view it as mere hype that’s soon going away as more advanced technologies and products emerge.

As such, investing in cryptocurrency may not be wise. To diversify your portfolio effectively and safely, consider other non-financial assets with long histories – stocks, bonds or real estate for instance – which have long histories behind them. As always, discuss with your SmartVestor Pro about your investing goals and strategies before taking this plunge.