Cryptocurrencies can open up your investments to new possibilities
Bitcoin outperformed many traditional asset classes last year.
Although opinions differ on bitcoin and other cryptocurrencies, this asset has gained in popularity and is in widespread demand from both individual and institutional investors.
One thing’s for sure: crypto-currencies are not going away, and they’re going mainstream fast. As more and more businesses accept crypto-currencies and the blockchain technology that facilitates their operation, you’ll inevitably need to learn the dynamics of the crypto world and even consider investing in it.
Here’s what you need to know about this asset class:
- What is cryptocurrency?
- How do you invest in cryptocurrencies?
What is a crypto-currency?
A crypto-currency is any digital currency, secured by cryptography, that is used as a medium of exchange enabling peer-to-peer transactions.
Bitcoin, the first blockchain cryptocurrency, is a form of digital currency invented in 2009 by an anonymous founder using the pseudonym Satoshi Nakamoto. Cryptocurrencies are not managed by a bank or public body. Instead, cryptocurrency token transactions are typically recorded on a public blockchain – made up of digital information stored in a database.
Blockchain technology is used to keep an online record of all transactions, and provides a data structure for the ledger that is considered secure.
Unlike fiat currency (government-issued money), which is controlled by central banks, crypto-currencies do not require transaction verification by banks and are independent of a central banking authority.
There are many different crypto-currencies, but bitcoin is the best known. At the time of writing, this cryptocurrency is valued at over $61,000 and has risen by over 760% in one year. Other popular cryptocurrencies include Ethereum, Litecoin and Cardano, among others.
While cryptocurrencies are a more recent phenomenon, they are revolutionizing the financial system and the way we think about money.
“Cryptocurrency is a new asset class that underpins the cryptoeconomy – an entirely new set of global financial services, commerce and payments that will be built on top of this new technology,” explains Max Branzburg, vice president of product at Coinbase (ticker: COIN).
James Putra, senior director of product strategy at TradeStation Crypto, says crypto-currencies open up access for retail investors to “a world of global capital, unlike what they can get in the US market”.
How to invest in crypto-currencies?
There are many crypto-currency exchanges from which traders can choose.
Beginners to crypto-currency trading may want to consider things like transaction fees, the type of crypto-currencies available on the platform, special offers such as resources for education and other features that align with your interests and goals.
TradeStation, Coinbase, eToro and Gemini, among others, offer an easy, accessible and secure platform to own and trade bitcoin.
When investing in cryptocurrencies, consider the role they will play in your portfolio.
According to experts, it’s best to take a balanced approach to investing in cryptocurrencies. According to Putra, a small portion, between around 2% and 5%, can be allocated to cryptocurrencies in your investment portfolio, as the volatility of this asset can cause its value to fluctuate dramatically. Cryptocurrencies continue to grow and evolve. That said, there is always speculation, which leads to increased volatility.
