Here’s why right now is the time for crypto

March 30, 2022


Here’s why right now is the time for crypto

Whether you’re new to investing or used to managing a more traditional investment portfolio, crypto has likely crossed your mind by now.

After its humble beginnings and early associations with the dark web and cybercrime, cryptocurrency has come a long way, proving even the staunchest of naysayers wrong. The $2 trillion asset class that’s sprung up around Bitcoin in little more than a decade is definitely here to stay—and it provides investors with a wealth of exciting opportunities. Still not convinced? Here are a few reasons why it’s time for crypto.

Portfolio diversification 

With global uncertainty caused by the response to the pandemic, supply chain shocks, and rising geopolitical tensions, commodity markets are sporadic, and equities are volatile. Yet, haven assets like gold are also failing to reap promising returns. Added to that, the yield on a “safe” asset like a US 10-year bond is wildly below the inflation rate, its coupon currently sitting at just 1.88%. Against such a turbulent backdrop, it’s pretty clear that investors need to diversify their portfolios by seeking alternative assets.

In the past, alternative assets have traditionally included real estate, arts, collectibles, or private equity. But today, crypto represents an increasingly attractive option as an alternative asset to diversify a portfolio. Even taking a position of just 1% or 2% is starting to become par for the course for many investors, with global financial institutions like JPMorgan offering wealthy clients access to BTC.

We’re also seeing a rising trend of public companies like MicroStrategy, Tesla, Square, and KPMG buying bitcoin (BTC) and ether (ETH) as balance sheet assets to counter the negative returns from holding traditional treasury assets like cash and cashlike equivalents. 

Inflation hedge

Inflation in the EU reached 5.9% in February 2022, and in the United States it hit 7.9%, the highest in 40 years. While the Federal Reserve is beginning to raise rates in an effort to combat this, a quarter of a percentage point’s difference does little for savers with money in the bank. The purchasing power of their hard-earned cash is quickly being eroded; as MicroStrategy’s Michael Saylor stated of his company’s reasoning for converting its cash into BTC, “We really felt we were on a $500M melting ice cube.” Clearly, holding cash and cash equivalents is not the wisest use of your money right now. 

Often referred to as “digital gold” because of its in-built scarcity and limited supply of 21 million, BTC’s value is projected to grow as demand increases. This is in stark contrast to fiat money which can be printed infinitely, diluting its value for all. The US government’s response to the pandemic was providing unprecedented stimulus packages and endless quantitative easing (QE), leading to massive inflation of the money supply. An astonishing 80% of all dollars in existence were printed in the last two years alone. This was a pattern followed by many developed economies, including the UK and EU.

Despite its volatility, BTC has been treated as an inflation hedge by many investors, including prominent global macro investors like Stanley Druckenmiller and Paul Tudor Jones, who called inflation “the single biggest threat to financial markets.”

Store of value

Investors are also investing in cryptocurrencies with limited supplies like BTC as a store of value over time. Again, unlike cashlike assets, the theory is that these digital currencies will go up over time as the supply diminishes and demand rises. However, this is certainly not a given, especially for investors looking for quick solutions. As we saw twice in 2021 alone, BTC was exceptionally volatile, rising to a value just shy of $70,000 and losing more than 55% of its value soon after.

While most that invest in BTC have come to accept and understand its volatility, with the buy-and-hold thesis that it will rise in value over time, these sharp drops and rises are not for everyone. With more than 13,000 different cryptocurrencies on the market, however, there are many different options, and one of the best stores of value without as much volatility currently is stablecoins.

Stablecoins are digital assets pegged either to a fiat currency or other assets such as gold or commodities. Being pegged to a relatively stable asset, investors can decide to store their wealth in stablecoins that yield significantly higher interest than traditional markets at around 9-13%, depending on the provider. While these rates may not continue for long depending on the direction that regulation around them takes, 13% compared to 0.50% in a bank makes crypto an attractive option for first-time crypto buyers.

24/7 markets

Cryptocurrency markets never sleep, which means there are opportunities to make a profit 24 hours a day, seven days a week. Compared to traditional markets that are bound by stock market hours, crypto represents myriad opportunities for savvy traders to capitalize on its sudden movements. 

Of course, even if markets remain open day and night, traders need to sleep. Fortunately, they can use tools and strategies such as bot trading to put computer algorithms to work for them and trade even in their absence. 24/7 markets also make crypto investing more globally accessible to all, as time zones have no bearing on when you can trade.

Infamous volatility 

Crypto’s volatility is often seen as more of a curse than a blessing, especially by more conservative investors who can’t stomach the 20% daily drops and rises. However, with prices that fluctuate wildly from second to second, minute to minute, opportunistic day and swing traders can harness crypto to make a profit whether the price goes up or down by longing or shorting the market. 

Unlike investors who buy and hold for the long term hoping that their assets will rise over time, day traders can actively make profits in both bull and bear markets. They can also amplify their gains by using leverage, where the exchange lends them funds to take out a larger position.

Continuous innovation 

Far beyond BTC and ETH, many other cryptocurrencies have appeared, offering a wide range of innovation and opportunities. Decentralized Finance (DeFi) has taken up much protagonism over the last couple of years as a real alternative to the existing financial system has sprung up without the need for intermediaries. In a truly peer-to-peer fashion, anyone with an internet connection and minimal technical prowess can earn interest on their holdings, take out a loan, get insurance, and participate in a whole host of financial activities without a third party.

While many traditional investors are held at the gates due to a lack of regulation surrounding DeFi, we’re still seeing some institutions take note. State Street, the Bank of New York, and Fidelity are all investing in this exciting new area, with many other traditional institutions also following (or considering following) suit. 

There is also a lot of talk about the Metaverse and Web 3, with many innovative startups being backed by VC funding in this area. While these are extremely emerging sectors currently, it’s highly likely that our physical and virtual lives will continue to converge as the average person spends more time online. Social media giant Facebook has already invested $10 billion in the metaverse, while Google has established a $39.5 million private equity fund for metaverse projects.

NFTs (nonfungible tokens) are also causing a lot of excitement for their ability to prove ownership of artworks and other items, including jewelry, cars, and real estate. Created to be limited edition or unique, NFTs also allow people to obtain digital artworks that are one of a kind. The popular platform “Bored Apes” sells its most expensive digital ape for more than $2.3 million.

Final thoughts

Many liken investing in crypto to investing in Amazon, Google, Netflix, or Facebook in their early days. It was hard to imagine how much of an impact these businesses would have on our daily lives back then.

The same is true with crypto today. There are limitless potential applications and use cases for it, many that no one’s even thought of yet. 

Investing in crypto now gives you the chance to get in early and be part of a bleeding-edge technology that’s reshaping our lives from finances to the way we consume entertainment, and interact with each other. If you’re ready to start your crypto portfolio, EQONEX has all the FX products you are familiar with, so you can start your portfolio seemlessly.

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