- Cryptocurrency is one of the hottest asset classes in the market right now. Here are five reasons for you to invest in cryptos.
- Investing in fundamentally strong cryptos can help you leverage their volatility and reap great returns in the long run.
- Cryptos are a great way to diversify your portfolio. They present an opportunity to make exceptional returns with an acceptable level of risk.
- Cryptocurrencies are a great hedge against inflation. FYI, between 2010 and 2021, the global inflation rate was 2.91%, while Bitcoin gave average returns of 1576%!
- With crypto, you invest in the potential of blockchain, a technology that shows great promise and is on the path to redefining how the internet is used.
- Once you decide on a crypto to invest in, the investment process is straightforward and offers tons of options. One of those is Coin Sets, a crypto product that minimizes your risk while maximizing your potential returns by offering you a diversified portfolio that is rebalanced periodically.
With investors rushing to pour their money into cryptocurrencies, they have become not just a hot asset class but also a frequent news headline. The primary reason behind this crypto rush is the expectation of earning higher returns. While the expectation is somewhat justifiable given the whopping returns of some cryptocurrencies like Bitcoin, Dogecoin, etc., as an investor, you should dwell on a thorough plan before investing in this asset to keep your portfolio afloat in green.
There are already so many articles, blogs, YouTube videos, and whatnot on whether crypto is hot or not, but it is hard to find a unanimous answer. So, once and for all, let us help you find an answer to – why should you invest in cryptocurrencies?
Here are five reasons for you to invest in cryptos.
1. Modest Returns in the Long-term
In 2013, the cost of one Bitcoin was only $112. Currently, it trades for over $20,000. Also, let’s not forget that its all-time high is above $60,000, and its market cap rose from $1.2 billion to more than a trillion at one point in time.
In the same manner, Litecoin, too, was valued at only around $3 in 2014-15 but is around $60 at present, with an all-time high of $245.
Well, this translates to two things:
i. There is high volatility in cryptos
ii. In the long run, fundamentally strong cryptos reap better returns.
To help you protect yourself in instances where volatility acts against you, it is important for you to do your homework. And when you invest in fundamentally strong cryptos, you are likely to make good returns.
Besides, crypto being the newest asset class, has some great potential that will likely unleash in the coming years until it matures like the stock markets and starts giving sustained returns. To give you some perspective, we can compare Bitcoin’s performance with different stocks that have gained considerable value in the long run, as below.
|Average Return (2010 to 2021)||Total Return (2010 to 2021)|
2. Diversifies Your Portfolio
You may have heard, “Never put all your eggs in one basket.” Well, these are wise words to be remembered as a rule of thumb.
While there is no perfect way to diversify, having 7-10% of your portfolio in cryptos is ideal. It helps you strike a balance between high-risk, high-return, and low-risk, low-return instruments.
Fixed income instruments like fixed deposits, EPF, NPS, etc., tend to have a low-risk profile. However, the returns from those are modest too. While you invest in these instruments, investing in other instruments like stocks and cryptos especially ensures that you take on slight risk in a bid to gain exceptional returns.
Also, crypto being a global asset class, is comparatively less influenced by microeconomic factors, unlike stocks.
3. Works Well for Hedging Against Inflation
Some cryptos are built to be finite in numbers, i.e., there can only ever be 21M Bitcoins. Their limited supply, when powered by high demand, creates value for the cryptocurrency, which helps combat inflation. Since the rate at which the value of this asset grows is likely to be higher than the inflation.
Historically, gold has been considered a hedge against inflation, and now people call Bitcoin digital gold.
Between 2010 to 2021, Bitcoin gave average returns of 1576% while giving a total return of 18,912%. Compared to that, the annual global average inflation rate was 2.91% for the same period. As a result, cryptos are way ahead as an inflation-hedging option.
4. Invest in the Unrealized Value of Blockchain
Cryptos are based on blockchain technology. Think of it as the internet in its early days.
Though just a decade-old technology, it shows huge potential in redefining the way internet companies will operate going forward. Investing in cryptos is an easy and simple method to invest in this technology. There might be skepticism over cryptos’ future value, but no doubts about blockchain.
Even governments across the globe have started to realize its importance and are building infrastructure and regulations to promote the same. We can take the example of India. The Indian government, under the Ministry of Electronics and Information Technology (MeitY), has established the ‘National Strategy on Blockchain’ as a move in the direction of adoption and usage of this tech.
Blockchain has numerous applications in different sectors, from telecom to the niche defense sector. You can leverage the potential of blockchain indirectly by investing in the right set of cryptocurrencies.
5. Easy to Invest
Once you know the ins and outs of investing in cryptos, the process is quite straightforward. There are tons of options to choose from, such as investing directly in cryptos or investing via crypto ETFs, buying stocks of companies building for Web 3 (Meta), etc.
Which option you go for depends on your level of understanding and preference for investing. There are also ready-made crypto baskets like Coin Sets for you to invest in crypto with minimum friction.
We at Mudrex make your investment journey simple with Coin Sets that let you invest in different types of cryptos based on their market cap, popularity, application, and more. This eases your investment process and gives you the expert’s take on which cryptos to invest in.
We believe in investing in ideas and value rather than price to create wealth. We understand that cryptos can prove to be a risky investment option if not planned well, but by diversifying your investment in various cryptos, we mitigate the risk.