Why Are People Investing in Cryptocurrencies?

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6-min read

People invest in cryptocurrency for different reasons. Let’s go through some of the more important ones.

Diversification

“Don’t put all your eggs in one basket”. That’s what diversification is all about. You want your assets distributed in different ways for two reasons.

One, you don’t want all your assets gone if something happens to that basket.

Two, different investments have different advantages. You want to benefit from all that.

You can diversify with different financial assets, like stocks, bonds, foreign exchange, and so on.

You can also diversify based on industry, like technology, healthcare, and entertainment.

Buying cryptocurrencies in your IRA investment portfolio is essentially one way of balancing that portfolio. Especially because the cryptocurrency industry is vastly different from traditional ones. This is also why crypto IRAs have become so popular in recent years.

This diversification may increase the potential of maximizing your portfolio’s growth.

Appreciation

Capital appreciation is the increase in price or value of cryptocurrencies.

Take Bitcoin for example. It was worth nothing when it was created in 2009. As of recording, it is hovering above $10,000.

Ethereum, the second-largest cryptocurrency platform by market capitalization, behind Bitcoin, is now hovering above $330.

That is the potential appreciation of bitcoin.

It has a downside too. It can crash quicker than it appreciated. We will discuss this more extensively in the next guide.

Huge growth potential

Bitcoin and other cryptocurrencies were the biggest investment story of 2017.

People becoming millionaires practically overnight hit primetime news.

But by January 2018, the price of Bitcoin fell 63 percent. The media was quick to declare the industry done.

Billionaires were bashing crypto. J.P. Morgan CEO Jamie Dimon was one of them. He called Bitcoin a fraud and said any J.P. Morgan traders caught trading Bitcoin would be fired.

The price of Bitcoin fell as much as 24 percent in the few days that followed. Right in that period, J.P. Morgan and Morgan Stanley started buying for their clients at low prices.

Billionaire George Soros is another. He slammed Bitcoin at the World Economic Forum in January 2018. After that, he gave the green light to his $26 billion family office to begin buying cryptocurrencies.

Since the industry is so young, there is huge growth potential. And it’s the billionaires who see this more than anyone else. Guess that’s why they are billionaires.

Dividends

You can generate regular, passive income in the crypto market in several ways.

First is HODLing: It stands for “Hold On for Dear Life.” Some cryptocurrencies pay out the HODLers, who simply purchase and carry the digital coins in their wallets.

You will see some cryptocurrencies that offer HODLing on your screen right now.

Second is Proof-of-stake or PoS.

Staking cryptocurrency means that you are holding cryptocurrency to verify transactions and support the network. In exchange for holding the crypto and strengthen the network, you will receive a reward. You can also call it an interest.

With staking you can generate a passive income by holding coins. Besides that you receive a reward in the form of extra tokens, you can earn extra when the coin increases in value.

Annual returns for staking vary between 1 percent and 5 percent, depending on the coin.

You will see some cryptocurrencies that offer HODLing on your screen right now.

Decentralization of Money

The US Dollar is controlled by the Fed. Every currency of every country is controlled by that country’s government. Essentially, what happens to it is the decision of the government.

Right now, the Fed is printing money like never before. As a result, the dollar is losing value.

Most cryptocurrencies will never be controlled by the government. No one can ‘overprint’ any of the cryptocurrencies because most cryptocurrencies operate under controlled supply.

This means networks limit the supply of tokens even when the demand is high. For example, Bitcoin’s supply will decrease in time and will reach its final number somewhere around the year 2140.

All cryptocurrencies control the supply of the tokens by a schedule written in the code.

The lack of government control over cryptocurrencies can also help with lower inflation risk. History has shown over and over again that when a particular government applies bad policies, becomes corrupt, or is faced by crisis, the country’s individual currency suffers.

But without the government controlling cryptocurrency, who will secure it? What if one crazy brilliant hacker gets into the system and starts creating cryptocurrencies?

This is where blockchain comes in.

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