Mon. Feb 6th, 2023

The answer to this question, like any other investment, is dependent on an individual’s plans, goals, and risk tolerance. 

Looking back in time, it’s clear that some cryptocurrency tokens were excellent investments at times.

Finally, it is up to each individual investor to determine whether cryptocurrency is a good fit for their portfolio. If you have a low risk tolerance, you should limit your exposure to crypto assets to a small portion of your overall investment portfolio.

In other words, don’t just invest in cryptocurrency; diversify your portfolio with stocks, bonds, real estate, and possibly some cryptocurrency as well. 

The Advantages of Investing in Cryptocurrency

Investing in cryptocurrency has several potential benefits, but it also has some unique risks. Diversification, the potential for high returns, and 24-hour trading access are just a few of the key advantages.

Diversification

Diversification is the concept of spreading your investments across various asset classes in order to reduce risk. Most investment experts agree that diversifying one’s portfolio is critical to long-term investing success.

Investors should choose assets that move independently of one another to diversify their portfolio. Having a mix of stocks, bonds, crypto, real estate, and so on can be advantageous.

Historically, cryptocurrency prices have moved relatively independently of other asset classes’ prices. Including a small percentage of cryptocurrency in your overall portfolio can assist you in balancing long-term investing strategies.

Protection against inflation

Many cryptocurrency experts believe that cryptocurrencies such as Bitcoin and Ethereum can act as a hedge against inflation.

The idea is that there are only so many Bitcoins and Ether tokens in existence. As the value of the dollar falls due to inflation, the price of one BTC or one ETH rises in dollar terms.

However, this is more theoretical than empirical. Crypto tax in India has too short a track record to determine whether it can be used as a long-term inflation hedge.

Excessive profit potential

In recent years, cryptocurrency has delivered phenomenal returns. 

The graph below compares the 5-year performance of Bitcoin (BTC) to that of the S&P 500 index fund (which is a collection of the 500 largest companies in America). Bitcoin has returned 1,416% over the last five years, compared to 67% for the S&P 500 index. When compared to the broad US stock market, BTC has approximately 21x higher returns. And when you zoom out even further, the results for Bitcoin are even more impressive. 

In other words, over the last five years, cryptocurrency has outperformed stocks as an investment — though only time will tell if this trend continues.

However, cryptocurrency is a highly volatile asset, and any potential returns will be affected by market fluctuations, transaction costs, taxes, and other factors. 

24 hour liquidity

Because cryptocurrencies are highly liquid, they can be easily exchanged for dollars or other cryptocurrencies. In fact, crypto markets are open 24 hours a day, seven days a week. Liquidity provides investors with options and allows them to trade when and how they want.

Other assets are less liquid. Stocks, for example, are only traded during normal trading hours five days a week. Real estate, for example, is far less liquid and may take weeks or even months to sell.

There are numerous cryptocurrency advantages to consider. Binocs is what you need to know all about crypto tax management and crypto portfolio tracking. Visit the website right away.