Bitcoin. Ripple. Litecoin. Ethereum. These are just some of the thousands of cryptocurrencies that you can choose to invest in.
Since the great 2017 Bitcoin bull run, investors have flocked into the crypto market hoping to find their fortunes. Unfortunately, more often than not, many end up getting burnt as a result of their folly.
This does not mean that cryptocurrencies are a passing fad. In fact, as we will explore together in this article, digital assets may in fact have a valuable position in any investor’s portfolio.
Let’s take a look.
1. Crypto-assets as a safe haven
With the global market in turmoil and stimulus packages being continually pumped into the economy, investors have begun searching for alternative means to hedge the value of their assets.
Unlike their fiat currency cousins, crypto or digital currencies are not issued by either governments or central monetary authority. This allows cryptocurrencies to have a fair degree of autonomy when compared to fiat currencies.
Government instability or shifting monetary policies can have a drastic effect on the market sentiment of a particular currency. For example, in the wake of a contentious U.S presidential election, the U.S dollar weakened in relation to other currencies as a result of a number of factors.
Despite strong economic numbers, the perceived government instability was a cause of concern for investors who abandoned the greenback in favor of other assets.
On the other hand, digital assets such as Bitcoin are unaffected by such factors – thus lending credence to the value of cryptocurrencies as a safe haven asset. As the crypto market is entire unregulated and decentralized, government instability and monetary policy have no effect on crypto prices.
2. Digital cryptocurrencies as a bulwark against inflation
Simply put, inflation occurs when an excess amount of cash is present in the market. This results in the reduction of a currency’s buying power i.e. everything becomes more expensive.
With the coronavirus pandemic forcing entire economies into lockdown, markets all over the world have been devastated. The drastic fall in consumption and subsequent unemployment has forced governments to introduce multiple stimulus packages in an effort to keep their economies afloat.
Unfortunately, more cash in the market does not equate to additional consumption. Instead, we will end up with more cash chasing the same quantity of goods thus leading to an erosion of buying power.
Unlike fiat currency, Bitcoins are capped at a limit of 21 million – meaning that miners can only mine a fixed amount of Bitcoin. This has the effect of preventing inflation and helps Bitcoin to maintain its purchase parity in the long-term by limiting the number of Bitcoins in circulation.
Read more here about the different kinds of cryptocurrencies available: blog.tezro.com/types-of-cryptocurrency
3. The synergy between fintech, cryptos, and blockchains
Fintech or financial technology refers to advancements within the banking industry that led to the digitization and automation of various financial processes.
Blockchain technology – the basis of all cryptocurrencies has found itself playing a significant role in recent fintech developments. RippleNet and Ripple XRP are all examples of how fintech has become integrated with both blockchain technology and cryptocurrencies.
RippleNet is a payment network that facilitates the transfer of funds between financial institutions and other organizations. Transactions performed on RippleNet can be completed within a matter of seconds at relatively low costs, thus allowing for the quick and affordable transfer of funds.
With time, we may even begin seeing how cryptocurrencies are able to become integrated within the financial sector and beyond thanks to blockchain technology.
Thanks to the rise of cashless payments and increased utilization of blockchain tech, it is quite possible to see that cryptocurrencies have an important role in the days to come. It may even force us to rethink our relationship with money as we know it.
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