In a fast-changing world where information about the short and long-term benefits of investments has been growing, the notion of trading different asset classes has been rapidly gaining popularity. In addition, the importance of building a portfolio of diversified assets that are in line with current and future developments is also being emphasized. One such asset class that is emerging strongly, challenging not only the current status quo but also processes as a whole, is cryptocurrencies.
Growth of the Cryptocurrency Ecosystem
The last few years have witnessed the growth of the cryptocurrency ecosystem due to a plethora of factors.
Rise of Blockchain Technology
With the rise of cryptocurrencies over the past decade, the underlying technology that powers it, blockchain, has gained further prominence. From a financial services perspective, the decentralized nature of blockchain has fundamentally changed the payments landscape and future delivery of products and services. Payments can now be made instantly to anywhere in the world at a fraction of the cost, eliminating that dependency on traditional financial institutions to make payments. Major financial institutions and technology giants, Facebook, J.P. Morgan, and Goldman Sachs, have been investing heavily in blockchain and in some instances, developing their own coins.
Governments have also taken an interest in adopting blockchain, given its immutability, transparency, scalability, interoperability, decentralized, and incorruptible nature. Internationally, governments such as Estonia have been widely using blockchain in the delivery of public services. Regionally, governments in Bahrain, Saudi Arabia, and the United Arab Emirates have turned to blockchain to facilitate government-related and cross-border transactions and services.
Regulations and Oversight
The cryptocurrency ecosystem has gained eminence and consequently, this has resulted in more oversight and regulations at both a governmental and institutional level. Such support has resulted in the industry maturing further and attracting more individual and institutional capital. The investable universe of coins is growing but it is ever more important to have these coins filtered to ensure that they are worthy of investments and do not represent an abnormally high level of risk. Diversification is important but being able to invest in the right cryptocurrencies is key coupled with doing it on platforms that are legitimate, robust, and most importantly, credible.
This is where regulated cryptocurrency exchanges come in and the important role that they play when it comes to undertaking proper due diligence of each coin and determining its worthiness and legitimacy.
Long-Term Investment Option
One of the main impediments of trading cryptocurrencies was figuring out how to navigate the ecosystem from opening an exchange account to sending, receiving, and storing coins. Consequently, given such difficulty, including cryptocurrencies in investment portfolios was limited.
With the rise of blockchain and the increased appetite for cryptocurrencies as an alternative asset class, cryptocurrencies are being increasingly viewed as long-term and diversified investments that should be part of the most individual and institutional portfolios. For those who have the time and skill to trade cryptocurrencies frequently, they can be profitable short-term investments too.
Additionally, cryptocurrencies are being viewed as a hedge just like gold is and with the continued development of the industry, one day it might replace gold as the leading hedge. For many millennials, the preference is already to hold cryptocurrencies over gold.
Awareness and Education
Most people find cryptocurrencies intimidating as they do not understand them. Understanding and owning them will give people both the necessary experience in addition to potential gains when cryptocurrencies become mainstream. Bitcoin and other leading cryptocurrencies are becoming more mature and their relevance as a mainstream asset class is increasing. With this in mind, capital flows in cryptocurrencies are expected to significantly increase moving forward.
Jurisdictional and Governmental Adoption
Cryptocurrencies are becoming mainstream where more jurisdictions and governments are taking a greater interest. This is coupled with more individual and institutional capital flowing into cryptocurrencies as they emerge as a new asset class that provides diversification. This bodes well for the future of cryptocurrencies and their respective prices. It is important that individuals and institutions enter the cryptocurrency realm through robust and well-regulated platforms.