Author: Nick Bain
The saying goes “you do not put all your eggs in one basket” – a simple but rather effective way of conveying the message to diversify your investments. Any seasoned investor will tell you this so that you can hedge your bets, maximize your returns and minimize risk.
The global pandemic caused by the COVID-19 or coronavirus has dealt an economic blow to billions of people around the world and caused havoc on the world’s stock markets, leading to the crash of early 2020. Not only have the markets suffered, but many of the world’s currencies have also suffered, losing much of its value in a matter of days.
These are uncertain and somewhat scary times for people, how could anyone possibly think of investment or diversification in this period of time? But that is exactly why this is the correct time and why everyone should take lessons from these difficult times so that when something similar to this does happen again, the blow is softened.
Why choose cryptocurrency?
For those of you who are unfamiliar, a cryptocurrency is a digital currency that can be used as a medium to exchange value and is secured by cryptography. True cryptocurrencies run independently of central governments, banks or other institutions, it is instead run by its own protocol and the community that participates in it.
There are many aspects that make cryptocurrency a very attractive investment, not just for seasoned investors, but for everyday people too. This is especially true in times of economic difficulty when people are uncertain and trust is low.
Below are some reasons as to why cryptocurrencies are a good investment to add to your portfolio.
Your money belongs to you
As mentioned above, cryptocurrencies run independently of any central entities or intermediaries, this means that no one is able to control your money, except you, the owner. This is an extremely useful aspect of the cryptocurrency, which becomes much more apparent in times of economic hardship.
No Government Intervention
The government is known for creating policies, rules and regulations that limit what you are able to do, this is especially true when it comes to money. Because of the decentralized nature of cryptocurrency, governments are unable to access your cryptocurrency, let alone restrict your transactions or block access. The importance of this cannot be stressed enough, people want to control and access their assets on their own terms, not when they are given permission by their government.
Furthermore, this freedom from government control decouples the value of the cryptocurrency to government policy which may damage its value. This has been shown countless times in the past when government policy or actions have resulted in the devaluing of one’s currency, significantly reducing the value of people’s hard-earned savings. With cryptocurrency, the actions and policies of any one government are unlikely large scale negative ramifications on the value of cryptocurrency.
When you send cryptocurrency to another user a peer to peer (P2P) transaction occurs where the cryptocurrency your own is deducted and sent to another user’s public key. There are no intermediaries involved, unlike a bank which ultimately decides whether or not to accept or reject your transfer request, the crypto protocol is indifferent. The protocol does not care who you are or who you send the cryptocurrency to and miners who secure the network and verify transactions do not care either – they are simply there to execute the protocol. This is not the case with traditional banks, who are in possession of your personal information and have access to your transactional activity.
This is beneficial to those looking to diversify their investments because they will have assets that are controlled by themselves and themselves alone and cannot be tampered with or seized by another entity, adding another level of security.
Many existing cryptocurrencies are designed to be deflationary, they do this by setting a limit to how many coins can be mined. The most famous example of this would be Bitcoin, where at the time of writing, approximately 18 million Bitcoins have been mined with its cap set at 21 million (the last Bitcoin will be mined in the year 2140). Because of this mechanism, Bitcoin along with many other prominent cryptocurrencies are immune to inflation, meaning the retention of its value can be considered outstanding. We have even seen in countries that experience high rates of inflation, the purchasing of cryptocurrencies dramatically increases, as was the case with Venezuelan hyperinflation that began in 2016. This is because people believe in the cryptocurrency to retain its value, in the face of economic collapse.
Also, consider this, shortly after the market crash of March 2020, the price of Bitcoin experienced a sharp dip, dropping to $3,800 after remaining between $7,000 – $10,000 for 10 months prior to the dip. This pattern was also observed in other cryptocurrencies during the same period. However, within a period of a couple of weeks, the price had bounced back to the same levels prior to the dip, one Bitcoin is currently worth $7,200 at the time of writing. This shows that cryptocurrencies has largely decoupled itself from Stock Markets and is, therefore, an investment that can minimize your risk in case of market failure.
Protect your privacy, time and money
Anyone who has attempted to digitally send money to a recipient, especially if they are overseas, knows how difficult it can be to complete this seemingly simple task. You and the recipient must be known and verified by the financial institution that is attempting to conduct your transaction. Furthermore, even if both of you are verified members and a transfer can take place, it is highly likely that fees and taxes will come into the picture, along with a significant amount of time you would have to wait before the transfer is complete. This is all assuming that your transfer can take place at all or isn’t blocked because of some arbitrary reason. This process is not only tedious but also loses you your precious time and money. It is a necessary evil that we have all accepted, to conduct secure transfers, we must give up some privacy, money and time, right?
Well, not necessarily, this is one problem that cryptocurrency can solve in a big way. Cryptocurrency is designed with the anonymity of the user in mind, and most (up to 60%) of crypto wallet applications do not have a KYC (know your customer) policy that requires the user to submit personal information. This means that verification of the user or the recipient is not relevant when you are trying to store or transfer cryptocurrency. As an added bonus, most cryptocurrencies can be transferred to another user’s public key (essentially their wallet) almost instantaneously, without exorbitant fees or taxes, merely a relatively small transfer fee is paid to the miners who secure the network. This not only saves time and money but also safeguards your private information, making it cryptocurrency a no-brainer as an investment.
We have established that cryptocurrencies possess many aspects that make it a great investment, not only that, it also has many benefits that can help users conduct business and personal transactions. In a time where there is economic uncertainty, cryptocurrency has shown to be a steadfast asset that is able to withstand global economic crashes, even in its infancy. As the crypto community grows, so will the strengths of the crypto networks, becoming more pronounced as time goes on. Investing in cryptocurrency is not only smart, but it may be necessary for people who want to secure their future.
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