Cryptocurrency has recently exploded in popularity. What used to be an innovative form of payment between digital savvy users is now also a means to digitally trade securities, facilitate customer rewards, do crowdfunding, and so many others.
Cryptocurrency, as an emerging investment tool, offers many benefits, and it is worth looking into as an alternative asset to add into your investment portfolio.
Here are some of the top reasons for you to start investing in cryptocurrency.
1. Ease of Access
Unlike other types of assets, you are not required to tie up your money in a long-term investment with cryptocurrencies. Depending on the market, you can easily make a considerable amount of profit in a short amount of time.
More importantly, since a lot of cryptocurrencies are already considered as commodity money, you can use them to invest in any business, the same way you would with fiat money, wherein you’ll be able to generate interest.
Transferring funds entails the use of blockchain technology, which guarantees that transactions are very safe and secure. Because of the absence of third parties and middlemen, the fees are also very minimal so you won’t get your profits eaten away by transaction fees.
Cryptocurrency investments are also very secure. Transactions between parties are recorded on the blockchain, ensuring speed and transparency. No one can change the history of transactions no matter what computer they use.
Many cryptocurrency investments are based on smart contracts. Smart contracts, or cryptocontracts, are computer protocols designed to facilitate, confirm and implement the performance of a contract. Smart contracts are stored on blockchain technology. They allow reliable, trackable, and irreversible transactions without the need for middlemen.
3. Lower Inflation Risk
Fiat currencies are typically controlled by their respective governments. This is why there are fluctuations in the value of a currency relative to other currencies, because governments regularly print more money. When a currency is devalued, the holder’s purchasing power goes down.
In contrast, cryptocurrencies are global currencies that operate digitally. Their values do not depend on the strength of a fiat currency like the dollar, or the strength of the economy. This means that they are not dependent on government policies and regulations that can fail, cause hyperinflation, or even lead to the complete collapse of the currency. Cryptocurrencies are created by following strict mathematical algorithms, and everyone can see on the blockchain how many coins are currently in circulation and when new ones get created.
4. Riskier, But More Profitable
Cryptocurrencies get a lot of flak for being volatile. This argument has some merit, but the same thing can be said of other types of assets that are typically thought of as steadier or less risky. The oft-repeated claim that bonds or stocks are less risky than cryptocurrency investments does not always hold true.
Every investment type carries some form of risk. The cryptocurrency market may be more volatile than most, but this is exactly what makes it an attractive option for many people. For example, a 200 USD investment in Bitcoin in 2011 is now worth almost 2 million USD today. That amounts to nearly a million percent return on investment in less than 10 years.
5. Diversify Your Portfolio
An established and effective principle for investing is that the risk of any portfolio can be significantly reduced through diversification. As an asset, cryptocurrency investments have zero correlation to the bond and equity market. For this reason, if you add a cryptocurrency investment into your portfolio, you are essentially diversifying and, therefore, reducing your entire portfolio’s overall risk.
A good rule of thumb to follow when you decide to invest in cryptocurrencies is to assess your propensity for taking risks. Here are some benchmarks to keep in mind:
- If you are a risk lover, 30 percent of your investment funds can be spent on cryptocurrencies.
- If you’re risk-neutral, 15-20 percent should do.
- Finally, if you are risk-averse, you need to invest at least 10 percent into cryptocurrencies.
6. Long-Term Investment
Investment experts recommend considering a cryptocurrency investment as a long-term one and this is sound advice. Most of the people who say that they lost money investing in cryptocurrencies are speculators, or those who don’t hold onto their assets for a very long time.
Make sure that you read up more tips for investing with crypto to understand which type is right for your specific needs. Remember that choosing the wrong cryptocurrency type to invest in can also set you up for a huge loss. Research and assess the market trends for the cryptocurrency that you are interested in.
Since its introduction, cryptocurrencies have been quickly gaining traction in today’s increasingly digitized global financial space. It is worth keeping an eye on the development of various cryptocurrencies to get a head start on a riskier but exceedingly profitable investment opportunity.