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| Cryptocurrency as an Emergency Fund: Is It a Wise Choice? |
As someone who is interested in the crypto world, you might be wondering, can cryptocurrency be an option for an emergency fund? Find out the answer!
Before rashly using cryptocurrency for an emergency fund, it's a good idea to first remember the function of an emergency fund itself. An emergency fund is a fund that is prepared to deal with emergencies or unexpected situations, such as accidents, illness, or job loss.
Cryptocurrency as an Emergency Fund: Is It a Wise Choice?
Emergency funds should be stored in investment instruments that meet the criteria of being safe, liquid, and stable. As long as the investment instrument meets these three criteria, it is okay to use it as a place to store emergency funds.
Investment instruments that are commonly used for emergency funds are usually gold, money market mutual funds, savings, and deposits. So does cryptocurrency meet these criteria?
1. Is Crypto Safe?
Crypto assets are digital assets that use cryptographic technology to secure transactions and control the creation of new units. Unlike the traditional financial system, where we entrust the security of our funds and finances to the Central Bank. In crypto, transaction security is carried out decentralized with Blockchain technology.
Simply put, crypto offers better transaction security than the traditional financial system. However, for storage issues, crypto is more vulnerable, because it is digital, it is vulnerable to digital theft attacks, such as crypto wallet hacking.
A crypto wallet is a term for storing crypto assets. In general, crypto wallets are divided into two main categories: hot wallets and cold wallets. A hot wallet is a wallet that is connected to the internet, such as a web wallet, mobile wallet, and desktop wallet.
A hot wallet allows you to access and transfer coins quickly and easily, but is also more vulnerable to hacker attacks. For this hot wallet, there are already several applications that have obtained permission from local authorities that regulate crypto trading.
In addition to hot wallets, there are also those known as cold wallets, which are wallets that are not connected to the internet, such as hardware wallets and paper wallets.
Cold wallets offer a higher level of security, but are also more difficult to use and require additional fees. When compared, storing crypto with a cold wallet is similar to storing gold bullion, where the security of storage depends on the asset owner.
2. Is Crypto Liquid?
Liquidity is the ability to sell or buy a crypto asset without causing a significant change in price. The easier it is to exchange a crypto asset for cash or other assets without significantly affecting the market price, the higher its liquidity.
In general, crypto has a high level of liquidity. Even its liquidity is free from national borders. This means that you can cash out crypto anywhere in the world. Crypto assets that have a high level of liquidity are the 3 main crypto assets, namely bitcoin, etherium and theter. However, there are also crypto assets that are less liquid.
Another characteristic of storing crypto assets is that unlike traditional currencies which are subject to inflationary pressures and government policies.
The value of crypto tends not to be directly tied to the economy of a particular country like traditional currencies, making it more reliable than traditional currencies, in times of economic uncertainty or crisis situations, when the value of traditional currencies has the potential to plummet overnight due to unexpected political events.
3. Is Crypto Stable?
In general, crypto assets have high profit potential, but also have high risks, such as price fluctuations, volatility, and instability. The price of crypto assets can change quickly and unstable, so it can cause losses, if emergency funds are needed in the near future.
Crypto assets have high volatility, which means that their price movements can rise or fall drastically in a short time, so it can cause stress or panic for their owners. Actually, PINA Friends can find a type of crypto asset that offers value stability. This type is called stablecoin. Stablecoin is a type of cryptocurrency designed to maintain the stability of its value.
Unlike other cryptocurrencies whose prices often fluctuate, stablecoins aim to stick to a certain value, such as traditional currencies (USD, EUR, or others), commodities, or other assets. Stablecoins offer price stability in a world that is often full of large fluctuations in the value of crypto assets.
Although not without risk, they have become an integral part of the crypto ecosystem, providing a more stable alternative for investors and users in their transaction activities.
Considerations for Using Cryptocurrency as an Emergency Fund
If we look at the characteristics of crypto assets in terms of security, liquidity and stability, crypto assets are attractive to use as emergency funds, but there are guidelines that must be followed, including:
1. Storing emergency funds in crypto assets is only an alternative choice, not the main one. The main emergency fund must still be stored in safe, liquid and stable investment instruments, such as gold, money market mutual funds, savings or deposits.
2. Choosing relatively stable crypto assets, such as stablecoins, whose value is equivalent to conventional currencies, such as the US dollar. An example of a stablecoin is USD Coin or USDC, whose value does not fluctuate much.
3. Choosing a safe crypto wallet. Please choose a wallet that suits your needs. If you want fast liquidity and quick use in an emergency, a digital wallet is the choice. Because it is connected to the internet, it is easy to use in an emergency.
4. Consult a Professional Financial Planner. Before allocating cryptocurrency as an emergency fund. A financial planner can help you evaluate your situation more thoroughly and provide advice that suits your needs and financial risk tolerance.
So, cryptocurrencies may offer an attractive investment opportunity, but using them as an emergency fund requires careful consideration.
Before allocating your emergency funds to crypto assets, make sure you consider all the risks and ensure you have a stable and easily liquid financial reserve when needed. Make sure to do thorough research, consider risk factors, and maintain peace of mind that your emergency funds are in a stable and reliable instrument when needed.
Hope it helps!