The main reason why people get into crypto is because of the money-making potential it holds. The mirage of quick and substantial gains continues to fascinate and lure in newcomers, making them ignore all the warning signs and experts’ recommendations telling them to tread carefully.
We say mirage because the days when crypto investing could yield massive returns are long and well gone. The stories you’ve heard about crypto turning average individuals into fast millionaires are not necessarily false. Some may have been exaggerated or embellished, but there was indeed a time when a relatively small crypto investment could generate huge profits.
However, that was back when the market was young, unexplored and unregulated, and there was plenty of room for growth and price appreciation. The context we find ourselves in today is completely different, with the market being a lot more mature and competitive, increasingly regulated and more integrated into mainstream finance – which reduces volatility and speculation, but also lowers reward potential.
Even though crypto coin prices continue to rise, it’s highly unlikely digital assets will ever experience the explosive growth some of them saw in the past, with the sole exception being niche projects that might behave differently than the rest.
So, if you were hoping to use crypto as a way to earn quick money and build wealth overnight, you might want to reconsider your plans or adjust your expectations because the reality is that crypto cannot make you rich anymore. Now that we’ve got the bad news out of the way, let’s look at the positives for a bit of balance.
While crypto profitability has dropped considerably, the utility holds firm – and has even increased over time. Holding crypto presents various advantages that go beyond immediate returns, and that some people may not be aware of since the narrative usually revolves around swift financial gains.
Portfolio diversification
As you may know, diversification is one of the core principles of effective investing and sound portfolio management. It implies creating a mix of different assets with varying risk and reward profiles and therefore varying price performances. This helps balance things out, ensuring that losses in certain investments are offset by gains in others.
Therefore, although volatile assets like crypto are often the target of criticism given the high risk they carry, they can be an advantageous addition to your portfolio. It hasn’t been that long since crypto entered the market, but the data we have so far suggests there’s very little correlation between the price movements of digital currencies and those of traditional markets such as stocks and bonds.
This makes crypto a good option for portfolio diversification, especially if your holdings are mostly made up of low-risk investments. The integration of assets that behave differently can lead to steadier returns in the long run. However, you should keep in mind that crypto remains a highly volatile investment, so you should limit your crypto allocation to avoid increasing the risk of your overall portfolio too much.
Inflation protection
Inflation has always been a sensitive issue, especially in developing economies across the globe, but the situation seems to have gotten worse in recent years due to a combination of economic, social, and political factors. In many countries where inflation is persistently high or has reached levels not seen in decades, people are struggling to cover basic expenses as the prices of essential goods and services exceed their purchasing power.
Since governments seem unable to solve the situation, looking for alternatives that could offer protection against inflation remains the only option. Those who worry that their hard-earned money might soon be worth nothing if they don’t do anything about it often turn to assets that are known to preserve their value over time, and crypto emerges as a potential solution. Digital currencies don’t depend on governments, and many have limited supplies (like Bitcoin), which helps maintain scarcity and can potentially drive prices up if demand increases. While this represents no guarantee, for many, using crypto as a store of value is still a better choice than watching their money lose value.
Independence
While digital currencies have yet to address the problem of the billions of unbanked people around the world and increase financial inclusion as they were expected to, they can provide something that fiat money can’t, namely, independence from state institutions.
Crypto is not issued or controlled by the government or central banks like national currencies. They are powered by a peer-to-peer system underpinned by blockchain technology, so they belong to the people. It’s true that large mining operations have eroded crypto’s decentralized nature to some extent, giving mining pools significant influence over the creation of digital assets.
However, as a crypto holder, you still have full ownership over your funds, without having to deal with any intermediaries or report to any state agency about your funds. This is a level of freedom that no other asset class can match.
Convenient transactions
If you’re tired of dealing with slow processing times or high fees whenever you want to send or receive money, you might find crypto to be a tempting alternative to fiat. Unlike conventional money transfers, which can take up to a few days to be processed and often incur restrictive fees, especially in the case of cross-border payments, crypto transfers are known to be swift and cost-effective. This makes crypto perfect for remittances or for those who conduct international transfers frequently. You should still take into account that blockchain activity can influence both transaction speed and fees.
As a relatively young asset class, crypto presents both opportunities and challenges. While major gains might be off the table, there are other benefits that crypto may provide that can make up for the diminishing returns. In the end, it’s up to each individual to decide if the effort of investing in crypto is worth it or not.
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