I have written this article to address a larger question on why should one invest in crypto as an asset class when you have so many other options including equities, bonds, real estate, gold and so on. The question at the back of mind is why should I take the pain of investing in an asset class with so much uncertainty and no regulation with a plethora of options around.
I have outlined some reasons which have excited me personally to invest a significant part of my personal portfolio and savings in this asset class. Hope it may spring new thoughts in your mind and increase your inclination towards this…..
- Be part of the biggest revolution of your lifetime: Most of us reading the article would have heard of the industrial revolution and of course have seen the internet evolution since internet explorers were introduced in early 1990’s, mobile revolution over the last 20 years and then smart phones coming of age after Apple introduced IPhone in 2008. While we did adopt it in our daily lives, we didn’t get a chance to invest in any of this opportunity unless we are Venture Capitalists or Angel Investors. The Blockchain technology is Internet 2.0 and is poised to change everything right from payments to supply chains to healthcare and everything you can imagine. But, the best part is that we can be a part of this investment journey and benefit financially as it gets we all adopt in our lives. We are really fortunate to see the biggest evolution in our lifetime and be a part of it while it is in its nascent stage. It can be your most rewarding investment ever and is an opportunity for us to lose if we miss this bus again when we are so close to the beginning of the next bull cycle in 2020.
- Its foolish to consider Bitcoin a ‘risky’ investment: Born in Sep. 2009, Bitcoin has been there for over 10 years now and if you review the financial performance, unless one invested in last quarter of 2017, he would have definitely grossed double digit %profit return. Mainstream media has created a very different notion about Bitcoin and people feel that it is the riskiest form of investment available to general retail investors. No doubt it is more volatile than any other asset class, but that is for different set of reasons which I discussed in my earlier article. The way I look at Bitcoin – I only foresee two possible scenarios : Either it will reach million dollar per coin value or it would be worth nothing! With every passing day, the probability of the Bitcoin value reaching the later scenario is exponentially diminishing with ever growing community, adoption as currency, acceptance as an asset class, ever-growig applications and so on. Bitcoin has reached a very different level of adoption as a currency and as an asset class as well with a very strong supporting infrastructure in the form of exchanges, ATMs, wallets and so on.
- Portfolio Approach to Crypto : For a lot of people, the term crypto currency is synonymous with bitcoin and they just contemplate crypto space as investing in one currency. While Bitcoin is no doubt the bellwether currency and constitutes over 60% of the overall market share, it is very important to have a diversified portfolio and not have all your eggs in one basket for various reasons. This is analogous to investing in stocks where we take a portfolio approach and also prefer mutual funds to diversify our investment. Similarly, you want to invest in various altcoins to diversify your risk of altcoins witnessing higher adoption and giving better returns, looking to challenge the epic currency with a disruptive technology, having unique applications and so on. While the million dollar value discussed above may take another decade or more to achieve and hence the exponential returns with Bitcoin, it is possible to realise significant returns with altcoins, which are at very nascent stage and have a promising potential. There are over 700+ crytpo funds globally investing exclusiovely in this space but yet to see one in India, thanks to the RBI ban imposed in 2018. As institutional investment in this space picks up in India, we will see quite a few crypto mutual funds being launched for Indian retail investors but till then one should take a balanced portfolio approach.
- Diversification from your traditional portfolio: Lastly, crypto investments are a great way to diversify from your traditional investment in equities and real estate which may remain subdued given the longest bear market expected with the COVID-19 pandemic. I believe this will be a major inflexion point in crypto history and a lot of institutional money will start chasing this asset class as funds will now start looking for new safe heavens. This shall have the crypto space come of age as it was born during the last recession when the central banks globally printed unlimited money to bail out the organizations, which showed the weakness of having a centrased economy. This is Bitcoin’s chance of proving its real mettle and demonstrating by example to people the true value of a deflationary currency and decentralized monetary system.
For these reasons, we are clearly at an in flexion point and at an unprecedented opportunity to invest in this space and be a part of this journey.
PS: The views presented are my personal views and one should not invest more than 5% of their portfolio in cryptocurrencies. Never leverage and invest only what you can afford to lose