Cryptocurrency has been dominating headlines for the past few years, offering many investors a new avenue and opportunity to grow their portfolio and wealth. However, the trick to successfully investing in cryptocurrency is understanding it well enough to avoid mistakes. This article will discuss what cryptocurrency is and how you can incorporate it into your investment portfolio.
Cryptocurrency is essentially a digital currency. These currencies record and verify transactions via a decentralized system using cryptography, also referred to as a blockchain. Built In describes blockchain as a “Distributed Ledger Technology (DLT), mak[ing] the history of any digital asset unalterable and transparent through the use of decentralization and cryptographic hashing.” This inability to unalter data makes cryptocurrency incredibly secure.
Currently, there are nearly 15,000 different types of publicly traded cryptocurrencies. The most well-known of these is Bitcoin, which presently has a market capitalization of $1.1 trillion.
The problem with relatively new investment streams, such as cryptocurrency, is that novice investors jump on the bandwagon without enough knowledge. You should never make investment decisions based on a fear of missing out (FOMO).
So, the real question is, how much of your portfolio should you invest in cryptocurrency? Most experts recommend that less than 5% of your total portfolio be cryptocurrency. If you’re new to the crypto market, it’s better to be around 1% — especially if you’re not watching the markets often. Crucially, you shouldn’t over-invest in this market due to extreme volatility. If you need an example of this volatility, just look at what happened to Bitcoin between December 2017 and December 2018 — the currency’s value fell from $19,650 for one unit to $3,183.
Choose digital currencies that have staying power. Instead of finding the crypto-version of a penny stock, look for cryptocurrencies with staying power. For example, there’s a fixed amount of Bitcoin, making it inflation-proof.
When talking about cryptocurrency, you can’t avoid NFTs or non-fungible tokens. These digital assets represent real-world objects, such as art, music, videos, and more. NFTs allow us to take the idea of investing in alternative investments such as art and collectables to the digital realm. Stay tuned for a blog post all about NFTs and how you can invest in them.
Right now, there’s a shift from traditional investment streams to alternative and digital investing. Cryptocurrencies are an alternative investment that’s seeing substantial growth. According to a recent survey from Cardify, there’s been an increase in how much investors put into the crypto market from 5% in 2020 to 25% in 2021.
Ultimately, cryptocurrency is another avenue to diversify your portfolio further to decrease risk and, hopefully, increase returns. Remember, not all investments are created equal. Make sure you do your research before investing large portions of your portfolio into new alternative investments. If you’re curious about alternative investing in the real estate market, get in touch with Jordan on our team today.