The worst-case scenario is that you are unable to liquidate your cryptocurrency
investment when you need to because there isn't enough market activity in that particular cryptocurrency.
Benefits of Investing in Cryptocurrency
We've so far covered some of the key factors that investors need to be wary of,
but there are also strong arguments in favor of investing in cryptocurrencies.
- New asset class
As cryptocurrencies grow and develop, as we've seen with Bitcoin and Ethereum, a new asset class for these types of assets is also emerging. Certain significant professional fund managers have established dedicated investment funds that only invest in Bitcoin and other cryptocurrencies, like Cathy Wood from Ark Investment Management.
- Diversification
By holding a variety of investments that respond differently under the same economic conditions,
the aforementioned institutional investors also seek to diversify their risks.
Some contend that the diversification effects of cryptocurrencies are advantageous, particularly in the face of growing inflation.
In addition, we've witnessed the emergence of new investment vehicles that
profit from the rise of particular cryptocurrencies, such as options and futures on Bitcoin and Ethereum,
as well as particular investment vehicles that handle cryptocurrencies expertly on behalf of investors.
- Upside potential
Last but not least, the industry is still relatively young,
so there may be even more developments in the future that will increase the appeal of investing in cryptocurrencies.
Examples include stablecoins, which are digital currencies backed by assets and linked to the value of a fiat currency.
More stricter laws, such as those governing Initial Coin Offerings, may be implemented to safeguard investors if fraud is a concern. Futures on cryptocurrencies were stated, and if the market changes,
futures on other cryptocurrencies that are traded on reliable exchanges may become available.
Additionally, futures enable bitcoin bears to short sell the asset, increasing total liquidity.
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