The cryptocurrency phenomenon has exploded in the last decade, with large investors trying to get a piece of this new market. This is because cryptocurrencies offer multiple benefits that outweigh traditional currencies, making them a safe and lucrative investment opportunity. Keep reading to learn about how cryptocurrencies work and the benefits of investing in them.
The birth of cryptocurrency
It all began with the introduction of Bitcoin by Satoshi Nakamoto. A decentralised digital currency, Bitcoin allows users to take ownership of their money and savings rather than holding them with a centralised bank. This entire notion was based on a technology known as ‘blockchain,’ which allowed for secure transactions using cryptography and gave rise to ‘cryptocurrencies.’
When the global financial crisis highlighted the weak structural integrity of centralised currencies, Bitcoin was in a great position to grow in popularity. However, as time went on, the blockchain technology that underpins Bitcoin was adopted by several other digital companies. This led to a whole new market of cryptocurrencies emerging, giving birth to the crypto space.
The growth of Bitcoin
Big investors began backing these new concepts, culminating in a massive market upswing. Traders and small investors noticed the possibilities in this new emerging market and began investing in crypto assets (Makarov and Schoar, 2018).
Over the last decade, Bitcoin has surpassed all other cryptocurrencies as a digital asset (Chohan, 2017). During its launch in 2009, Bitcoin had hardly any value. But years later, its growth in value was exponential compared to other markets, rising from mere pennies to tens of thousands. This meant that those who had invested early in crypto assets were able to grow their wealth and acquire financial freedom.
Cryptocurrency can be categorised as a non-correlated asset, since crypto markets are unaffected by the price factors that influence normal stock markets and other commodities. The independent nature of crypto operations insulates against the prevalent fluctuations that drive down the value of bonds and equities (Ram, 2019).
How cryptocurrency value changes
The main drawback of cryptocurrency is its volatile nature, with previous studies into the price of various cryptocurrencies yielding varied results. It is also well known that opinion leaders can influence the price of Bitcoin, as often demonstrated by Elon Musk. His tweets regarding cryptocurrencies have a history of causing Bitcoin prices to fall and rise, showing how easy it is to manipulate the market. This means that investing in cryptocurrencies has its risks and as such, the market needs constant monitoring.
Yet despite this, millionaires are continuing to invest in cryptocurrencies because the pros far outweigh the cons. Here are three reasons to invest in the crypto market today.
1. Investing in cryptocurrency
Bitcoin (BTC) is a revolutionary cryptocurrency that competes with fiat currencies. Also known as fiat money, these are legal tenders backed by the government instead of commodities such as gold and silver.
One of the key differences between Bitcoin and fiat currencies is that Bitcoin is like gold; it has a finite supply of 21 million BTC. On the other hand, banks can continue to create more money which causes fiat currencies to decrease in value. Monetary inflation lowers purchasing power, making these currencies weaker. However, since Bitcoin has a finite supply, it will not lose its value and as such, it is often referred to as ‘digital gold.’
New bitcoins are also generated at a predetermined rate every year to provide a predictable inflation rate. The blockchain system self-regulates and as mining becomes more challenging, it will be decades before the last Bitcoin is mined. This further decreases the chances of Bitcoin experiencing inflation, making it a good long-term investment (Jang et al., 2019).
With all this in mind, digital assets like Bitcoin, Litecoin and Monero make great hedge investments against inflation. By investing in digital assets, you can diversify your investment portfolio and spread the risk for better wealth management.
2. Swift and secure transactions
The decentralised blockchain system is a big advantage when making investments in crypto. There is no need to put your money in the hands of banks or brokers, and there is also no censorship so no one can block your Bitcoin wallet.
Cryptocurrencies are easily accessible as long as you have a smartphone. You can even exchange fiat currency for your desired cryptocurrency using established crypto ATMs. The cryptocurrency is then sent to your device ready to make further transactions
Since no financial institution or government controls the crypto world, transactions made through the cryptosystem are easier and cheaper than traditional methods. This is because financial institutions do not monitor exchanges of these digital assets.
Another advantage is the possibility of anonymity during crypto exchanges. Cryptocurrency mixing services combine transactions, making it difficult for outside observers to track funds back to their original source. Experienced individuals can make the trail anonymous, giving a sense of privacy. These procedures require great skill and are often complex for beginners in the crypto world.
3. Global investments in cryptocurrency
Finally, another advantage of investing in cryptocurrencies is that they surpass geographical and territorial boundaries (Marthinsen & Gordon, 2019). Conventional financial institutions delay transactions and are pretty pricey with regard to infrastructure and varying policies. In comparison, cryptocurrency transactions made online are unaffected by these typical restrictions. This means they make a great choice for those looking to invest widely across different countries.
This disregard for geographical boundaries also applies to time zones. The advantage of this is that, unlike stock markets which are only open during regular business hours, the crypto market is open around the clock. With unlimited 24-hour access, you can continually use, invest, and trade, making the most of every hour the day has to offer.
The advantages of investing in digital currencies
The benefits of investing in digital currency are great, from swift transactions and increased privacy to year-round investment opportunities and protection from inflation. As such, the global cryptocurrency market has become the fastest-growing market seen in our lifetime. And that is why millionaires are investing in cryptocurrencies.
References
Chohan, U. (2017). A History of Bitcoin. SSRN Electronic Journal.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3047875
Jang, Yi, Kim, & Ahn. (2019). Information Flow between Bitcoin and Other Investment Assets. Entropy, 21(11), 1116. https://doi.org/10.3390/e21111116
Makarov, I., & Schoar, A. (2020). Trading and arbitrage in cryptocurrency markets. Journal Of Financial Economics, 135(2), 293-319. https://doi.org/10.1016/j.jfineco.2019.07.001
Marthinsen, J., & Gordon, S. (2019). A theory of optimum cryptocurrency scope. Economics Of Innovation And New Technology, 30(2), 183-196. https://doi.org/10.1080/10438599.2019.1687395
Ram, A. (2019). Bitcoin as a new asset class. Meditari Accountancy Research, 27(1), 147-168. https://doi.org/10.1108/medar-11-2017-0241
