Learning to invest in general can be intimidating for many people. The complexity of cryptocurrencies can be on another level. A new technology that has the potential to disrupt a wide range of industries certainly attracts attention. And while the returns so far have been nothing short of spectacular, much remains to be proven before people view this asset class less as a speculative instrument and more as a legitimate wealth generator.
If you are seriously considering investing in cryptocurrency, you have come to the right place to help you find the answer.
It depends on what you believe in.
According to McKinsey, a consulting firm, the amount of wealth in the world today is north of $500 trillion. This figure includes financial assets, such as stocks, bonds, and cash, and real assets, such as machinery, equipment, and real estate. This value has more than tripled from 2000 to 2020.
As of now, the entire cryptocurrency ecosystem, worth 2 trillion dollars, makes up less than 0,5% of global wealth. While the cryptocurrency market has skyrocketed by over 11.500% in the last five years, this is undoubtedly still a small amount in the grand scheme of things.
You might be wondering what I'm trying to get at with all these crazy numbers. Well, whether or not you should invest in cryptocurrencies boils down to one question: Do you think the percentage of global wealth held by cryptocurrencies will increase or decrease in the future? There's no need for a complex financial model. At a high level, it's really that simple.
In my opinion, cryptocurrencies will increase their share of the world's total wealth. I believe this for two main reasons. First, the entire industry has demonstrated its resilience and proven that it's not just a fad. Cryptocurrencies grew in popularity and attracted a lot of attention in 2017, and prices skyrocketed, as also reported by Bitcoin Era Official Website. After values plummeted, crypto flew under the radar until after the pandemic took hold in mid-2020. Since then, we’ve seen a steady increase in value, as well as significant innovation.
And this brings me to my next point. There's so much talent gravitating toward cryptocurrencies that it's hard not to believe this technology is here to stay. Similar to when the internet burst onto the scene in the late 90s, digital assets are a playground for speculation, but more importantly, for entrepreneurs looking to build viable businesses. Consequently, I think it's a safe assumption that cryptocurrencies will increase their share of global wealth over time.
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Here's a good place to start
A good general rule is to only invest in cryptocurrencies with money you're comfortable losing. Even with the astronomical rise in crypto prices, we can't forget that this is still a nascent and volatile asset class that still has a lot to prove. Only you know your financial situation, but more importantly, only you know your psychological makeup. Therefore, investing an amount that allows you to sleep well at night, while not negatively impacting your financial situation if things go downhill, is vital.
Once you have a dollar amount established, Bitcoin and Ethereum are great places to start. Both have long histories, deep developer networks, a high institutional interest and liquidity. Together, they make up approximately 59% of the entire cryptocurrency market.
Created and released in 2009, Bitcoin was the world's first cryptocurrency project. It is a decentralized payment network, a system that allows anyone in the world to send money to anyone else with low (or no) fees. The revolutionary innovation was that all of this was possible without the need for a central authority. Bitcoin is slowly gaining mainstream adoption as a legitimate payment mechanism.
With its current value approaching $400 billion, Ethereum is the next major cryptocurrency behind Bitcoin. What makes Ethereum different, and better for some, is that it is a programmable blockchain. Self-executing software, known as smart contracts, can be built on top, again without the need for a central authority. Ethereum has sparked massive innovation with decentralized applications and non-fungible tokens (NFTs).
We hope you now have some clarity when it comes to investing (or not) in cryptocurrencies. It's an exciting, rapidly changing, and disruptive technology that should be on everyone's radar.
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