Why More Investors Are Turning To Cryptocurrencies
Bitcoin has seen a huge rally since the height of the pandemic in March 2020 rising from it’s yearly low of $5,165 to reaching trading peaks of $18,492 this week. This impressive performance is turning the heads of many investors, particularly wealthy investors.
A recent survey by deVere Group found among the 700 high net worth individuals they surveyed that by the year 2022, 73% of them intend to or will already have invested in some form of cryptocurrency.
Why are they rising in popularity?
A large reason why Bitcoin has seen such a huge surge recently is partly due to the Covid-19 pandemic. With the decline of cash, investors have realised that digital currencies could very well be the future. This has led to many investors rebalancing their portfolios towards these digital assets, in order to not miss out.
Another notable reason that investors are growing towards cryptocurrencies is that they’re borderless, which makes them perfect for the increasingly globalised world we find ourselves in. When you also consider that cryptocurrencies such as Bitcoin are less susceptible to fraud and identify thefts, it becomes understandable why cryptocurrencies are growing in popularity.
Should you invest?
Despite it’s growing popularity, many are still sceptical about its long term value. For example, Elon Musk tweeted that Bitcoin is “ghost money” and Warren Buffet stated that cryptocurrencies are “rat poison and have no value.”
The reason investors such as Warren Buffett are reluctant to invest in cryptocurrencies is that because it’s not a revenue-producing asset. Unlike a stock where the value can be determined by its earnings, cryptocurrency provides no income stream to its owner. The price of cryptocurrency is largely driven by speculation, which for some investors is a turn off as they want to invest in something that has intrinsic value, not speculative value.
While cryptocurrencies may be exciting, they do pose risks for investors, and it’s important to consider this before investing. Much of the technology in the space is still being developed and is not yet proven. We’re still in the infancy stages of cryptocurrency, and a large majority of cryptocurrencies that have been created will most likely fail and become worthless.
So although some cryptocurrencies may have huge growth potential and could very well disrupt our financial system, you have to be aware of the inherent risks that come with investing in cryptocurrencies.
There’s no question about it; cryptocurrencies are risky. But it does appear that virtual currency and its underlying technology, blockchain, are here to stay. More and more investors will continue to flock to digital currencies. If you’re going to be one of them, then you should only consider investing in cryptocurrencies if you’re willing to hold onto them for the long-term. Also, consider investing in multiple assets, so if one fails, then you have other assets to fall back on. Due to the fluctuating nature of digital currencies, you really have to mitigate the risk of losing your capital by establishing a well-diversified portfolio.
If you’re nearing retirement or looking to make a quick buck, then you should stay clear as the extreme volatility could sabotage your finances.