The question that countless potential investors are asking themselves is if cryptocurrencies are a viable investment. This must be researched in context with the billions of dollars spent, the hype surrounding cryptocurrencies, and the daily launch of new cryptocurrency ventures. You should consider that you can use cryptocurrencies in several investments such as college football odds, exchange and others.
Although cryptocurrency may provide astronomically huge gains overnight, there is also a significant drawback. Investors should assess if their liquidity needs, time horizon, and risk tolerance match their investment profile. Investors must complete their research, allocate a suitable portion of their investment, and acquire the necessary investing skills.
What An Investor Should Think About
One should consider asset allocation before making any financial decisions. To deliver diversified returns over the long term, asset allocation refers to distributing your assets over various products. The same is true for cryptocurrencies; to determine how much of your investment portfolio may be devoted to cryptocurrencies, you need to consider your risk tolerance, financial objectives, and timescale.
When contemplating a cryptocurrency or other digital asset, you should do your homework. It is not advisable to acquire digital assets based only on a friend’s hot tip or out of FOMO (Fear of Missing Out). It would be wise to study the whitepaper before making any crypto-asset investments to have a better understanding of the cryptocurrency’s goal, technology, and use case.
Liquidity Restraints
The liquidity restrictions that certain crypto assets encounter are an additional factor to be taken into account. Liquidity is simply how easy or difficult it is to purchase or sell a certain item at any time without having a substantial impact on the price.
For instance, if you want to purchase a rare car, there is not a lot of them available, and if you can locate one, the amount you will pay is essentially what the seller demands. The market is particularly illiquid.
The price you pay for the yen, however, will be wherever the market is if you want to purchase something more general, like some Japanese yen, in return for your U.S. dollars since there is plenty of liquidity. As there is a lot of liquidity among sellers of JPY who will take USD as payment, the next buyer of the yen will probably also buy the yen at a price that is similar to or around the one you transacted.
Because certain cryptocurrencies are more liquid than others, investing in them requires you to be ready to cope with illiquidity both during the buying and maybe throughout the selling process. The worst-case scenario is that you are unable to liquidate your cryptocurrency investment when you need to because there isn’t enough market activity in that specific coin. However, some sites accept certain coins regardless of the liquidity. For instance, you will always be able to use almost every coin to make particular investments like NCAA football odds.
Diversification
By holding a variety of assets that respond differently under the same economic circumstances, investors can very easily diversify their risks. Some contend that the diversification benefits of cryptocurrencies are advantageous, particularly in the face of growing inflation.
In addition, the world has witnessed the emergence of new investment mechanisms that profit from the rise of certain cryptocurrencies, such as options and futures on Bitcoin and Ethereum. This is in addition to particular investment institutions that handle cryptocurrencies expertly on behalf of investors.
Possibility of gain
Last but not least, the industry is still relatively young, so there may be even more developments in the future that will increase the appeal of investing in cryptocurrencies. Examples include stablecoins, which are digital currencies backed by assets and tied to the value of a fiat currency. The use cases of crypto, such as on college football lines and safe online shopping, are its strong points.
Stricter laws, such as those governing Initial Coin Offerings, may be implemented to safeguard investors if fraud is a concern. Futures on cryptocurrencies were stated, and if the market changes, futures on additional cryptocurrencies that are traded on reliable exchanges may become available. Additionally, futures enable bitcoin bearish to short sell the asset, increasing total liquidity.