Confused about cryptocurrencies? Scared of the volatility in cryptocurrencies? It is normal to be confused about the new asset class. Moreover, the volatility in recent times hasn’t helped either. The question which many of you might have is should I invest in cryptocurrency? The answer is yes. You should definitely invest in cryptocurrency.
Should I Invest in Cryptocurrency?
1. Improving cryptocurrency regulations:
Cryptocurrencies are no longer the wild west of the investment world. More and more countries are bringing in regulations for cryptocurrencies. With increased regulations, there will be more transparency in the cryptocurrency sector. The increased regulations will also reduce crypto scams. Proper regulations will ensure a secure environment for investors. The regulations have also made the cryptocurrency exchanges more secure. Some of the steps taken to increase regulations include:
• Preference for cold storage
• Listing of more transparent cryptocurrencies
• Easy deposit and withdrawal mechanisms
The regulatory framework has made it easier for investors to invest in cryptocurrencies.
2. Blockchain is going strong:
The underlying technology for cryptocurrencies is blockchain. There is no denying the fact that blockchain is going places. It is used in a wide variety of applications. Some of the government authorities all over the world are using blockchain-based platforms. It is providing proper connectivity to millions of people around the globe. The connectivity pertaining to bureaucratic tasks as well as financial remittances using blockchain is increasing significantly. Thus, when it comes to the underlying technology, there is no problem at all.
Many of the Fortune 500 companies are betting big on blockchain technology. Among these plans, the most prominent are Microsoft and IBM. Most of the big companies back any technology after conducting proper due diligence. This ensures that the underlying technology does hold some potential. As blockchain technology becomes an integral part of most businesses, limelight will also focus on cryptocurrencies which will make it a trust-worthy asset option.
3. Easy to invest:
Over the past couple of years, cryptocurrency exchanges have made it easier to invest. There are quite a few reputed exchanges which you can use to invest in cryptocurrencies like:
• And many more
The procedure to invest has been simplified. You have to create an account and after that, submit your KYC details. Once your account is active, you can invest in a plethora of different cryptocurrencies. Most of these cryptocurrency exchanges easily support more than five cryptocurrencies. Thus, you can diversify your holdings without any problem.
4. Upcoming cryptocurrencies:
Let’s be honest! Bitcoin (BTC) is not going to have another 100x return period. It is time to look beyond Bitcoin (BTC) if you want to gain exponential returns. Thankfully, the number of options are plenty. Sure enough, if you want to play it safe, you can pick from the top 10 cryptocurrencies by market cap. However, the point which we are trying to make is that currently, you have the largest number of Altcoins available to invest. Chances are, even in the top 20 most valued cryptocurrencies, you might find quite a few relatively unknown cryptocurrencies like:
• Tron (TRX)
• Stellar lumens (XLM)
• Litecoin (LTC)
• Monero (XMR)
• Binance coin (BNB)
• And many more
When it comes to diversifying your cryptocurrency Holdings, there has been no better time than now. Sure enough, there is more risk in investing in the Altcoins, but it is your call to make. When it comes to options, there is no better time than now.
5. Volatility can come to your advantage:
Many people are afraid of rising asset prices. The problem is that in such a situation, it is challenging to invest. Every day, the cryptocurrency prices might be inflated in such a situation. Fortunately, cryptocurrencies are much more volatile. In fact, there are long periods of underperformance and negative returns which you can utilize to your advantage.
Such volatility can provide you with the easy entry point. If you have not invested in cryptocurrencies up until now, you can use this volatility to your advantage. It might be gut-wrenching to see your investments down by 20% to 30% in a few months, but with proper diversification and investment rationale, you can reduce this drawdown significantly. We are not saying that any chance of risk is absent. The point which we are trying to make is that if you invest only 10% of your corpus in cryptocurrencies, the overall drawdown on your portfolio will be lower. Moreover, if you pick 10 cryptocurrencies to invest, each cryptocurrency will hold only 1% of your overall portfolio.
When you create such a portfolio, any cryptocurrency falling even 50% will have only a 0.5% impact on your portfolio. This is a figure which you can comfortably live with. Moreover, when you use volatility to your advantage and invest at lower levels, the drawdowns can be decreased further.
6. Increased coverage:
Till a year back, cryptocurrencies information was available only on a handful of websites. In the past year, the industry has expanded at a significant pace. Hundreds of websites track every development in cryptocurrencies. Hence, finding cryptocurrency news is easy. Some of the information which you can easily get about cryptocurrencies these days includes:
• Research and analysis
• New developments in cryptocurrencies
• Important technical levels in cryptocurrencies
• Support and resistance levels in cryptocurrencies
• Price history
• Information about founders and developers
The wide coverage helps you to research about cryptocurrencies. You need not invest blindly. There is much more information available than just the white paper of the cryptocurrency. There are websites which have charts of price movements of years. You can easily track the price movements and analyze the technical levels before investing. There are dedicated websites which help you understand the support and resistance levels of various cryptocurrencies before investing.
The more information you have before making an investment decision, the better it is for you. The increased coverage of cryptocurrencies is not only helpful for traders but also long-term investors.
7. Diversification of your existing portfolio:
Diversifying your portfolio can reduce your risk significantly. If you have been managing your portfolio for more than 5 to 7 years, chances are you might have already invested in asset classes like:
• Mutual funds
• Real estate
• Precious metals
Now is the time to add one more asset class to that list. You can easily park a portion of your total portfolio (not more than 10%) in cryptocurrencies. The diversification will allow you to reap rich dividends in the future as long as you pick the right cryptocurrencies.
8. Highly liquid:
Cryptocurrencies are much more liquid as compared to asset classes like real estate. You will not have to wait for the buyers to show up. With a few precautions, it is easy to keep your cryptocurrency portfolio liquid. These precautions include:
• Investing with the help of liquid exchanges
• Checking the volumes of the cryptocurrencies and Altcoins before investing
• Not parking the bulk of your funds in a single cryptocurrency
• Avoiding news based selling
Generally speaking, when you follow these four tips, it will be easy for you to keep your cryptocurrency portfolio entirely liquid. It will allow you to liquidate within a couple of hours. Most of the cryptocurrency exchanges will help you with the withdrawals within a couple of days. Thus, if due to any reason you want to liquidate your cryptocurrency portfolio, you can do so in a short period.
9. Proper protection of your investment:
If you have been following cryptocurrency News, chances are you might have heard about hacks and Cryptojacking attempts. The truth is that, if you are prepared to take a few extra steps, you can protect your cryptocurrency holdings easily. You have to opt for cold storage to protect your cryptocurrencies.
Cold storage refers to storing your cryptocurrencies off-line in the pen-drive like device. Since the cryptocurrencies will then not be connected to the Internet, there is no chance of hacking. There are such cold storage devices available known as cryptocurrency wallets. You can buy them from Amazon.
10. Cryptocurrency mutual funds:
If you do not have the time or the inclination to research cryptocurrencies yourself, there are various cryptocurrency mutual funds. Most of them are index funds which invest in top 10 or top 20 cryptocurrencies. Thus, you have a low cost and easy way available to invest in cryptocurrencies.
You need not wait for the launch of Bitcoin ETFs to invest in cryptocurrencies. You can use these mutual funds to your advantage. It will eliminate the entire research part. You can buy the tokens of these mutual funds from a wide variety of cryptocurrency exchanges.
11. Cryptocurrencies backed by value:
The general perception is that market forces regulate cryptocurrencies. There are however a few cryptocurrencies which are pegged against the US dollar. The value of these seldom changes. If you’re looking for cryptocurrencies to park your funds in the interim while you decide on the cryptocurrency to invest, these are the perfect options. Some of the cryptocurrencies which are pegged against the US dollar are:
• Tether (USDT)
• Paxos Standard Token
• TrueUSD (TUSD)
These are known as Stablecoins. Value is more or less equal to $ 1. They hardly ever fluctuate in price by more than 2%. They are the perfect option to park funds safely.
An underlying asset backs a few other coins. Example of such a coin is Binance coin (BNB). The fortune of Binance coin is linked to the Binance cryptocurrency exchange. Thus, there are different investment opportunities available in the cryptocurrency universe. Some of them allow you to invest in cryptocurrencies backed by an underlying value or asset.
So, if you’re still on the fence about cryptocurrencies, now is the time to take a call. With so many different investment options, you can easily pick the one which you prefer. It is an asset class which cannot be missed over an extended period.
Disclaimer: This should not be considered as professional investment advice. It reflects just the opinion of the author. You should conduct your own due diligence or contact a registered financial advisor before making an investment decision.