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Question: Which asset class has been making waves and rhymes with tiptoe?
That’s right – Crypto.
In recent years, you could not have entered a room without hearing someone utter the word. It’s hard to ignore the buzz around it.
As investors, we’re always looking for ways to diversify, and today, crypto is becoming a frequent portfolio staple.
But why though?
Well, let’s delve into the world of crypto!
Cryptoassets are digital assets that use cryptography to secure and verify transactions, as well as to control the creation of new units.
Perhaps one of the best-known cryptos is Bitcoin, but there are also thousands of other cryptoassets available today.
One of the reasons investors may consider crypto as an investment is due to its high volatility, which can, in turn, lead to significant price swings.
Of course, this volatility can be a double-edged sword, as it can lead to potentially big losses as well as big gains.
But, for many, this volatility is seen as an opportunity for higher returns.
Another big appeal of crypto is that it is decentralised, meaning that it operates independently of governments and central banks.
This makes it a potentially attractive investment option for those who are concerned about currency devaluation or factors such as political instability.
In addition, crypto is still a relatively new asset class, and although some cryptos have made staggering gains since their inception, there is still a lot of potential for growth as crypto continues to mature and gain widespread adoption.
This is another reason that crypto is such an attractive option for investors who are looking to get in on the ground floor of a potentially profitable investment.
There is no guarantee that every cryptoasset will rise, which is why some investors diversify within the asset class itself.
Some may choose to buy more established cryptoassets, such as Bitcoin and Ethereum, which are perceived by some as less risky, while others may choose to invest in a particular niche of the crypto world.
For example, a metaverse fan might buy the cryptoasset of 3D world Decentraland, whereas an NFT collector might purchase Polygon — a protocol popular for hosting NFTs.
Generally speaking, the smaller the market capitalisation of the cryptoasset, the higher the risk-reward ratio, and the greater the chance of outsized returns or losses.
Naturally, as with any investment, there are risks involved with investing in crypto.
The market is still largely unregulated, which can make it vulnerable to unexpected developments.
In addition, the high volatility we mentioned earlier can also lead to rapid losses.
On the flip side, such price movements can also provide opportunities for profit, particularly for investors looking to make timely purchases based on long-term trends, such as the decline of trust in traditional finance.
As with any investment, it’s important you do your own research and to understand the risks involved before making a decision.
Nevertheless, for those who are looking to diversify their portfolios, crypto can indeed be an attractive option.
So is crypto the future? It seems many investors think it is, and curiosity in the world of decentralised finance is growing.
So, does it have a place in your portfolio?