As Alternative Assets Grow, It’s Time to Recognize Cryptocurrency as a Viable Investment Option
If planning is key to building wealth, then cryptocurrency has a vital stake in the future of wealth management. To that end, the time has come to recognize cryptocurrency as a viable investment option.
Paradigm Shift in Finance
As bitcoin and its altcoin competitors have no doubt demonstrated, cryptocurrency is considered to both an asset class and paradigm shift in the global economy. The power lies in the blockchain, which has emerged as one of the most coveted technologies in the industry. The utility of blockchain has enabled more than 1,000 cryptocurrency projects spanning every corner of the economy. Recently, we crunched the numbers and found no less than 27 industries have been represented by ICOs. And that’s this year alone.
As the use cases of blockchain increase, so too will the acceptance of the digital tokens tied to them. This extends to both security tokens as well as their utility-driven counterparts.
Growth of Alternative Assets
The growth of alternative asset classes is nothing new. Investment in these markets has surged since the financial crisis and, according to PwC, will breach $13 trillion in 2020. The market today is by no means tiny, with roughly $3 trillion tied to alternative assets.
Alternative Asset Growth (Forecast)
Cryptocurrencies are well represented among alternative assets, but will see a bigger share of the pie as institutional capital enters the market. Based on recent developments, those days aren’t that far off.
World’s largest futures exchange CME Group Inc. has announced plans to introduce bitcoin futures by the end of this year. The announcement was made about a month after the exchange said it would not be entering the space. In doing so, it joins competitor CBOE Global Markets Inc., which has already announced plans for bitcoin futures to commence by early next year.
Futures are one of many ways investors can reap the benefits of cryptos. By joining one of the major exchanges, market participants can trade cryptocurrencies against one another and even against fiat money.
Then there’s the Bitcoin Investment Trust, which provides a traditional vehicle for entering cryptos by way of publicly-traded shares.
As the market for cryptocurrency matures, investors should look for the growing availability of passive investment channels tied to digital assets. These are the types of assets that can shield against volatility – something that has stricken the crypto market since its inception.
Institutions are Reluctant (For Now), but You Shouldn’t Be
For all the potential surrounding blockchain and cryptocurrency, hedge funds have embraced the former but not the latter. Though they may give an elaborate reason for not entering the market, the truth is they don’t know much about it. Then there’s those who listen to folks like Jamie Dimon, who bash cryptocurrency but embrace arbitrary money printing. As a reminder to all: one of the primary motivations for participating in cryptocurrency is to trade what is arbitrary for what is certain. Much like gold, something like bitcoin cannot be created out of thin air. It must be mined, regardless of whether you understand what that means or not.
That’s not to say hedge funds and institutions are completely baseless for avoiding cryptos. The author has covered this market since 2013, give or take, and has seen just how volatile it can be. One also cannot help but recall the day when bitcoin was intimately linked to the dark web in all its grotesque ways. Then there was the Mt. Gox implosion – an event that your younger author truly believed was possibly the death knell for bitcoin.
That being said, most of us who have joined Hacked have made it passed the superficial understanding of cryptocurrencies. Most of us know that the majority (probably vast majority) of altcoins are bullshit and that speculation is propping up large segments of the token market. But we also know that these downsides do not in themselves dictate the viability of cryptocurrency-as-an-investment class.
I’ve always said that the success of cryptocurrency is not necessarily tied to the success of bitcoin. After all, bitcoin is just one kind of digital asset. It’s probably not even the best one when measured in terms of scaleability and payment processing capability. There’s no doubt that the success of the global market cap depends on bitcoin, but the paradigm shift has already taken place for the community to survive even without the most pre-eminent digital token circulating at more than $6,000 a pop.
Bitcoin taught us to look at value differently (i.e., independently of what central banks tell us.) This legacy is only expanding as young men and women look to build their financial futures independently.
As far as reputation is concerned, cryptocurrencies are undergoing a major facelift. The perception crisis that once dogged bitcoin – Mt. Gox, Silk Road, theft of coins – is being replaced by value drivers like investability, political profile, price independence and risk reward profiles. Hacked.com will be covering these benefits in greater detail in the near future.
Cryptocurrency, as represented by bitcoin in the following chart, has clear benefits when compared with the traditional traits of money.
The benefits of cryptocurrency-as-an-investment stem from the underlying utility of the blockchain. The blockchain is not just the foundational tool for digital currency, but a major value driver for any industry that requires trust. We can think of at least a few industries that fit that bill.
Featured image courtesy of Shutterstock.