Investment firm Revix unpacks some of the common misconceptions about bitcoin and other cryptocurrencies.
Cryptocurrencies are used only for speculation – myth
Any asset class with some volatility will always attract speculators, and cryptocurrencies are no different. Revix saw a substantial increase in trading activity over multiple asset classes during global lockdowns, with stocks and crypto being the most accessible to those with a smartphone. Don’t get us wrong; we have seen futures trading activity on crypto over four times that of spot trading, which shows that speculation is rife in the crypto space, but the same has been shown for stocks. Platforms like Robinhood have made stock option trading so accessible that monthly option volume in February 2021 what it was in the same month a year earlier.
While speculators are in crypto, many are buying the asset as a diversification tool or long-term investment in a disruptive technology with the Grayscale investment trust leading the charge owning over 655 000 bitcoins (3.5% of the circulating supply). This shows that not only are cryptos invested in for the future, but the technology is being taken very seriously.
Cryptocurrencies are too volatile to gain wealth in a stable manner – myth
Yes, the volatility in crypto is high compared to traditional assets in certain sectors. Bitcoin has often been compared to gold, banking or tech, and thus it’s only fair to compare those volatilities. If we use spot gold (16% 90-day volume), JPMorgan (24% 90-day volume) and Tesla (70% 90-day volume) as a proxy for gold, banking and tech, we can see that bitcoin (95% 90-day volume) clearly has superior volatility. Although this volatility may scare potential investors, bitcoin has seen a 115% increase year over year for 10 years. This makes it one of the best if not the best-performing asset classes in the last decade.
But if this volatility is not your game, there is a stable way to grow wealth using cryptocurrencies, namely using stablecoins. Stablecoins are simply a digital version of fiat money and are pegged to that currency. For example, USDC is a stablecoin that is pegged to the US dollar and, as such, its value is $1. With stable coins comes the opportunity to create savings accounts, or “Defi savings vaults” as we like to call them. These savings vaults offer a fiat-denominated saving account that earns an interest rate well above market (up to 7%). Now that’s stable growth!
A cryptocurrency is real money that can be used for payments – myth (for now)
Besides the exception for El Salvador, bitcoin and other cryptocurrencies are largely not accepted as legal tender in most countries Many independent shop owners will gladly accept bitcoin as payment, but at a governmental level, countries are yet to accept bitcoin as legal tender.
Cryptocurrencies are a good investment – fact
Bitcoin has seen a 115% increase year on year over the last 10 years, which is by far the best asset class you could have invested in over that period. Keep in mind that with compounding those returns, you actually received an astonishing 220 364% return on your investment!
Many may think the run is over, and crypto is on its way down, but you’d be misunderstanding the bigger picture here. Crypto is like early-stage technology investing, and in that same light, it still has a way to go before it becomes a mature asset class and gains significant market share. Returns will still be up for grabs.
For many “smart money” investors (hedge funds, asset managers, etc), the way to look at cryptocurrencies, and bitcoin in particular, is as a diversification tool in their investment portfolio. These investors know something special about bitcoin: that it is predominantly uncorrelated to most asset classes, meaning that if you add it to your mix of stocks, bonds, commodities and whatever else you hold in your portfolio, you actually get more return for the same risk taken on.
I don’t want to get too technical, but depending on your weighting of bitcoin, you can actually decrease your portfolio’s risk for an increased return.
Cryptocurrencies are just a fad that will fade away – myth
While we don’t know which cryptocurrencies will ultimately win the race to dominance, a whole financial ecosystem is being built right in front of your eyes. People get confused and think that because it’s called a “currency” that it has to be used for payments. Meanwhile, most cryptocurrencies are actually early-stage tech companies using blockchain technology to revolutionise multiple sectors and markets. From banking, asset management and insurance to healthcare, music and personal identity, it’s all being built on a decentralised system that finally says goodbye to fee exploitation.
Whether you believe this is a fad or not is up to you… I’m going to go with “not”.
Want to gain exposure to this asset class in a diversified way and take advantage of the “smart money” trick? At investment platform Revix, you can gain access to ready-made “crypto bundles”. These bundles allow you to own an equally weighted basket of the world’s largest and, by default, most successful cryptocurrencies.
This article was brought to you by Revix, the simplest, effortless and safest way to invest in crypto.
- The author, Brett Hope Robertson, is investment analyst at Revix
- This promoted content was paid for by the party concerned