Any responsible investor knows that diversification is a vital key to a successful portfolio. By spreading their capital in different ventures and assets, investors are less likely to lose all their money in case the market goes awry. As the common saying goes, “Don’t put all your eggs in one basket.” For this reason, it’s crucial to look beyond traditional investments and seek alternative options.
Alternative investments refer to any kind of asset whose value is not directly tied to the larger fluctuations of the traditional market. While the traditional market affects all assets in one way or another, non-correlated assets are important portfolio additions because they are not as affected as much. Some examples include fine art, wine, precious metals like gold, and cryptocurrencies.
Currently, cryptocurrencies like Bitcoin, Ethereum, and Monero are rising as some of the top choices among investors seeking alternative investments. For individuals thinking of adding cryptocurrencies to their portfolios, here is a quick look into what they are and what investors should expect if they decide to invest in them.
What Is Cryptocurrency?
A cryptocurrency is a decentralized form of currency that exists exclusively online. Rather than relying on centralized authorities like banks and other financial institutions, cryptocurrencies use cryptography and blockchain technology to create coins and enable transactions. The goal of cryptocurrencies is to create a peer-to-peer financial system where anybody can send and receive money anytime, anywhere with no middlemen involved.
At any given moment, the crypto market is filled with thousands of different kinds of cryptocurrencies, each with its own spin and unique take. Investors can access their digital coins in a variety of ways, including coin exchanges and crypto wallets. For example, individuals who would like to transact with Monero can download a reputable XMR Wallet to pay and receive money in complete anonymity.
Advantages of Investing in Cryptocurrency
As mentioned earlier, alternative investments like cryptocurrencies are important in adding variety to your portfolio. However, there are several types of non-correlated assets to choose from in the market like mutual funds and real estate. Thus, it begs the question: What makes cryptocurrencies good portfolio additions? Are there any specific perks to investing in them? To answer these, consider the following.
Support a Highly Innovative Technology
Today, there are few modern innovations that can be defined as truly groundbreaking or impactful on a global scale. However, cryptocurrencies–particularly, blockchain technology–have enormous potential to become one. Blockchain technology can completely transform the financial world, and it is not limited to this sector alone. Other groups have already started considering its use in healthcare, education, and even political systems. It goes to show that the possibilities with this specific technological development can reach far beyond its original purpose in digital coins.
Investing in cryptocurrencies is an effective way to support this blossoming technology. After all, the crypto industry, compared to the traditional stock market, is still in its early stages. Only time will tell how big blockchain technology can become and how far it will impact people’s lives.
Cryptocurrency Is Gaining More Support
Because cryptocurrencies are still so new, many investors hesitate in adding them to their portfolios. After all, the crypto market is known for its exceedingly high volatility along with its alien-sounding vernacular and complex processes that the average investor may find intimidating.
However, the crypto industry is slowly maturing. While it may look like the Wild West now, it will not stay that way forever. As of writing, several bodies of authority have taken crypto more seriously and have considered how it can impact society. Several companies have also started to put into place regulations within their jurisdictions that can help protect their users and investors.
Apart from these, digital coins have also become more accessible. More companies (which even include some banks) have made it easier to exchange cryptocurrencies for fiat currencies. Compared to selling a real estate property or a piece of fine art, it is significantly easier to exchange cryptocurrencies for cash, which can be extremely helpful when users need the cash immediately.
Before Hopping on the Cryptocurrency Train
Cryptocurrencies have a lot of potential–both as an investment and as a piece of technology. Despite this, however, it is essential that investors not see them through rose-colored glasses. The crypto market is notoriously volatile, hence, individuals who invest in it with no plan may find themselves swept away by the dramatic rises and dips and lose more money than they initially expected.
Thus, interested backers must conduct extensive research first before purchasing any digital coins. They must assess their risk appetite and formulate a plan that benefits their objectives and portfolios best. Hiring a financial counselor who can offer advice in crypto can also help them round out their perspective about cryptocurrencies in general.
After all, high rewards often come with high risks, and vice-versa. Only by equipping oneself with knowledge does a person tip the scales, and the same goes for people who are thinking of investing in cryptocurrencies. By doing so, aspiring investors minimize the risks, create a data-based investment plan, and explore the new possibilities crypto has to offer.