The past three years have seen the meteoric rise and inevitable correction of a pivotal new financial sector that’s changing how we think about money and value. The rise and fall of digital currencies created a new paradigm that investors will need to be cognizant of to ensure long-term performance.
Cryptocurrencies are remarkable for their proliferation without the consent of any centralized authority. Without asking permission, digital currencies have stepped onto the main stage of financial markets, and they aren’t going away any time soon.
They can be transferred instantly and for free via their underlying technology, the blockchain, and it’s clear that they represent an important role in the future of finance. In turn, fund managers and advisors now recognize that exposure to cryptocurrency is essential for any portfolio.
For example, a fund comprised of 99% USD and 1% Bitcoin performed better than the S&P 500 over the last ten years, and, as the blockchain ecosystem continues to grow, it becomes an intelligent way to balance risk and reward.
In 2019, the upside on a modest cryptocurrency investment is astronomical compared to other assets, and the young market is more accessible than ever before.
The blockchain ecosystem is more welcoming now than ever, and enterprising investors are clamoring to comprehend it and find an edge, which inevitably means taxation and documentation.
Investors need to be aware that, in many jurisdictions, there are new tax obligations on cryptocurrency returns. It’s not difficult to apply your country’s laws to your gains or to use emerging blockchain taxation platforms that make compliant crypto investing a breeze.
There are also new friendly blockchain platforms that help investors control and track their entire crypto portfolio, regardless of how many wallets they have or which coins they’ve chosen to invest in.
Once-esoteric financial ideas are now more inclusive, and this same notion applies to institutional investors as well as retail participants, which is an excellent sign for the future.
Solutions from Gemini and Coinbase offer custody and insurance for wealthy clients, pension funds, and other entities currently sinking their fiat capital into the burgeoning crypto market.
Most importantly, investors need to avoid investing too much of their net worth while also preparing for turbulent market movements as the asset continues to find its footing in the status quo.
Now that markets have matured, there has never been a better time to pursue digital currencies. Technical trends indicate that the end of a nearly 1.5-year bear market is coming to a close, and platforms are continuing to mature, becoming more proficient and prolific along the way.
For example, after reaching an all-time high of $20,000 in late 2017, BTC endured a historically predictable crash that dropped the price by 80-90%. Now that the digital currency has reached its downcycle, it’s clear that the bear market is concluding, creating better investment opportunities in the future.
At the same time, the blockchain is quickly integrating into the financial and business sectors. The most skeptical benefactors of the traditional banking industry are now welcoming cryptocurrency solutions, evidenced by JPMorgan’s JPM token, increasing pressures for Bitcoin ETF assets, and Fortune500 support of crypto payments via inbound platforms like Bakkt.
Even regulators are giving more guidance on how they see crypto and blockchain solutions, and as it gets more defined, cryptocurrency’s infiltration into traditional markets and ideas will accelerate.
Investors no longer need to be tech-savvy to add legacy cryptocurrencies to their portfolio, and the immense amount of interest and expertise in the young industry has resulted in solutions that make it much easier to control your entry.
Those who are very risk averse no longer need to learn how to buy Bitcoin, even in their preferred small quantities, to get exposure. Futures contracts, available from traditional exchanges like the Chicago-based CME, allow regular brokers to offer these derivatives to retail clients. XBTC, for instance, tracks the price of Bitcoin in real time, while CFDs for other cryptocurrencies are also available through licensed brokers online.
Investors who want to add the underlying cryptocurrencies to their portfolio will be able to teach themselves how to open a blockchain wallet, buy cryptocurrencies at an exchange, and transfer and hold them. Being responsible for a private key and maintaining custody over the underlying digital asset is more complicated but can pay off with faster entry and exit into fiat money, a more diverse array of assets, and less trading restrictions.
Investors with larger risk appetite can move their tokens from centralized wallets and invest in new decentralized ideas.
Ethereum’s dApp ecosystem offers new ways to mobilize crypto funds, such as Maker, which allows people to use their ETH as collateral for blockchain fungible stable coins. This new type of decentralized leverage could favor the fortunate, and other opportunities to stake smaller projects with your holdings will mean lucrative authority privileges and commissions as these chains grow.
Simply put, cryptocurrencies are at a stage where even an uninitiated retail investor can get involved in one of the most compelling iterations of the future of finance.