A crypto boom: Why cryptocurrencies are the hottest alternative investment of the moment
In less than twelve years, cryptocurrencies have gone from being a niche (if somewhat eccentric sounding) investment to gaining widespread acceptance as a valuable commodity.
In this episode, I discuss why these intangible, digital tokens are changing the way people spend, invest and look at currency. Between their easy access, high liquidity and potential for soaring returns, cryptocurrencies will only grow in value and certainly deserve a place in your investment portfolio.
Remember: All investing involves risk. The content of the podcast is for informational purposes only and is not investment advice. Please always use caution and diversify.
Hello and welcome to the 15th episode of Alternative Investing. I’m Trevor Kraus, Communications Manager at MyConstant.
In my previous episode I spoke at length about collectables — specifically comics — and how they’re a worthy and fun alternative investment to compliment your primary investments. And I’m continuing today with cryptocurrencies. In 2021, why are people using crypto as an alternative investment? What are the biggest cryptocurrencies and where do they get their value from?
I think it’s safe to say that up until the end of just last year, the popularity, visibility and understanding of cryptocurrencies were not exactly mainstream. People certainly knew about them before that time, but it was — esoteric.
I remember sitting in a finance course in grad school back in 2017, and one of my peers brought up investing in bitcoin, or the value of bitcoin — something like that — and I remember not having a clue what he was talking about. And I wasn’t alone, no one else in the room commented and the professor — who is super bright, has a PhD, he just brushed off his question and was either skeptical of bitcoin, or just didn’t have much knowledge about it.
And to go off of that Bitcoin story, shortly (maybe a month or two after) that conversation in my class, I had a quirky, kind of computer nerd friend of mine over my apartment and while I was cooking bolognese and enjoying my Australian Shiraz he was trying to convince me to buy Bitcoin — at the time it was somewhere around 7 or 8 thousand US dollars for one Bitcoin. Again, at the time, I wasn’t all that familiar with it so I didn’t invest anything and brushed it under the rug.
Needless to say, my friend owned two bitcoins at the time and made a tidy profit off of that investment this past January. So the moral of that story is, if you have a nerdy computer friend who studied at MIT and he or she tells you to do something — just do it. Take their word for it.
But I digress. So during 2020, with the pandemic in full swing, and so much uncertainty with government money, bitcoin and other cryptocurrencies gained widespread attention. So much so that my 70 year old mother is aware of them and some understanding of how they function — that’s when you know you’re no longer “niche.”
At the start of this podcast Chris and Peter talked about the history of Bitcoin, which is really the history of cryptocurrency. So I don’t want to rehash their discussion, but to summarize, In early 2009, months after the stock market crash and banks being bailed out, people were looking to invest in something that was disconnected from major governments.
And this is when an unknown person or persons, going under the pseudonym, Satoshi Nakamoto, began using a public ledger called blockchain. The bitcoins created on the blockchain are really a reward for a process called mining. Now, there are only 21 million bitcoin in existence and a little over 18 million have been mined so far. As time goes on it’s more and more difficult and takes more computing energy to mine for these bitcoin.
So here, with bitcoin, we already have the ever present element of scarcity. Much like the wine and the comic books we discussed last week, the scarcer a product is, the more value it tends to hold. Or at least, it has more perceived value.
Now, that’s not to say that all cryptocurrencies are scarce. Take Ethereum for example, which stands in second place to bitcoin as the most valuable cryptocurrency. Unlike bitcoins finite amount of coins, The Ethereum coin expands according to demand. An Ethereum block is created about every 14 seconds, compared to bitcoins every 10 minutes. And at the moment, Ethereums circulating supply is over 115,000 million coins mined.
At the moment, there are over 4,000 cryptocurrencies in the world today. And as with any investment, some are more valuable than others. The top three cryptos are Bitcoin, Ethereum and Tether or XRP. The last two swap places depending who you ask.
So why are any of these cryptos worth your while? Well, for one, cryptocurrency can offer you awesome returns. So far crypto can be more profitable than most other investments. For example, the highest return you can expect from US stocks is about 20%, which is considered a pretty solid result. Cryptocurrencies on the other hand, tend to show wide changes in their prices over relatively short periods. It is risky – but high profits are never sure, and such potential is hard to find in other assets.
As I just mentioned you can make a lot of money in crypto, particularly trading it. This however, is because it’s a volatile asset. As we saw during the pandemic, bitcoin sored to over $50,000 for one bitcoin, and now, it’s slumped down to around $33,000. Many people, myself included, believe it will go back up — but that remains to be seen. If you’re the kind of person who likes the excitement of price fluctuations, cryptocurrency is definitely something you should consider — when you read the news about it every morning it’s never dull — it’s always changing.
It belongs to you
Another reason that people are drawn to crypto is that it is yours and yours alone. You have full control. When you purchase crypto on an exchange like Coinbase or Binance, you can either leave it on their platforms or store the crypto in a hot or cold wallet. A hot wallet is an app on your phone and is always linked to the internet. If you start accumulating a lot of crypto and want something more secure, you should consider a cold wallet which looks like a USB stick. These wallets essentially act as your own little bank.
Cryptocurrencies offer you a level of independence that’s impossible with other investments. When you keep your money in a bank, you are at the mercy of other people and organizations. At any moment, your access to the money that is rightfully yours can be limited or closed by the bank outside of governmental structures. The bank can be robbed or go bankrupt.
Back in 2011, I was living in Philadelphia and I was banking with a small bank at the time called Nova. And I ended up moving back home to the suburbs with my parents and there were no Nova banks there. So I decided to move my money to PNC. And boy that was a good choice. Because less than 4 months after shifting banks, the chief lending officer of the bank was arrested for basically stealing customers money out of their accounts.
Look, I’m not trying to sow distrust in banks, I’m sure many are run by good natured, decent people. But between what happened to me at Nova, and the 2008 fiasco, a little skepticism is more than warranted.
So unlike the banks, with cryptocurrencies, your money is yours only and stays yours forever. You don’t rely on financial institutions for holding or transferring it. You do not have to pay their exorbitant fees. In the long run, it can become the basis of a truly open and decentralized economy. With bitcoin increasingly becoming adopted and accepted by different companies (there are even bitcoin ATMs), having bitcoin or other cryptocurrencies at your disposal would really put you ahead of the curve.
Another reason that people like crypto and have faith in investing in it is for its high liquidity. Think about it, if you invest your money in a property — say an apartment — and something happens to you and you need immediate access to your investment. Well, you’re probably not going to have it. Unless the real estate market where you invested in is hot — it’s going to take a while to unload that house or apartment. And sometimes you buy someplace that you think is evergreen — always going to bring you value and then things change.
Look no further than coronavirus and how it made people flee the big cities of the world. Who would think that in a matter of one year rents and home prices in all of the major US cities would drop suddenly. I remember right before covid hit, reading how home prices in all the suburbs of America were stagnant or going down. And then they did a complete 180.
So when you have any asset you need to consider it’s liquidity – that is, how easy it is to purchase or sell it at a price close to the market rate. By their very nature, cryptocurrencies have very high liquidity – you can quickly and easily buy and sell them, and the technological organization of trading platforms allows the use of a wide variety of tools and tactics like automated buying and selling at a specified price and algorithm-based trading.
On MyConstant, we use cryptocurrencies to back all of our loans. When anyone borrows on our platform that person must put up 150 to 200% of the loan amount in crypto. That way, if the borrower defaults or the value of the crypto falls, we can sell it immediately to cover the loan. This is why no investor has lost a cent on our platform to this day.
Another point on why I like cryptocurrencies as an investment, is for their simplicity.
Getting into any kind of investment, be it stocks, bonds, or something else entirely, is traditionally complicated and time-consuming. My father has worked as a financial advisor his whole life and when I was in highschool he’d try explaining buying stock or shares in a company and I’d be in the car and I had no idea what he was talking about or how these financial instruments worked.
And trust me, when he took me into his office and tried explaining on his computer he lost me even more! Fast forward 20 years, I have a better understanding now, but compared to crypto, it’s still a complicated field. Even if I told you to go by a house tomorrow, most people wouldn’t really know where to start or where the money is sent to or the necessary paperwork involved.
Not to mention, many investment opportunities (for example, real estate) have an extremely high entry threshold – you cannot just invest 100 bucks; you need a much more significant sum at your disposal to even get started.
Cryptocurrencies are a real sign of the times; both joining and taking part is simple. You do not have to deal with any institutions, sign papers, or visit banks. You simply create an account, get a wallet, and track all your assets with very little effort involved.
My final bit of praise for crypto would be it’s favorable forecasts. By this I mean, what does the future of crypto look like? Are people making good returns off of their investments?
As with any investment you need to do your due diligence. Even when you think you’re done researching, research some more. People who do stock market or crypto trading as a full time job, they’re living and breathing the market and not just researching for homework, but it’s something they find complex, exciting and intriguing.
If you do not have previous experience, trying to profit through day-to-day trading in cryptocurrencies is likely to both lose your money and drive you crazy. Price fluctuations happen daily, and they are often much more significant than what you may be used to with regular currencies. A much better solution is to invest for the long-term – currently, most cryptocurrencies are going through a downward trend, but most forecasts are favorable and show growth within two to five years. And when we say “growth” in relation to cryptocurrencies, it is often explosive.
Just like any other potentially high-return investment, cryptocurrencies carry a particular risk – but it is more than offset by the degree of independence they offer.
Both Chris and I have money invested in various cryptocurrencies, and generally speaking, we just leave them be. It’s exciting to look at the morning news and see how the price has fluctuated, but I personally don’t have the time or energy to research and trade cryptos. But if you do, that’s terrific. That’s something you need to decide on your own, not just base it on my opinion.
So I’ve outlined the reasons why crypto is a great alternative investment. But which cryptos at the moment are worth investing in? This is something that will change over time, what is newsworthy now, might change in the near future. Not to mention, new cryptos are constantly finding their way on exchanges and the public conscience.
The most obvious crypto is the one that started it all: Bitcoin.
Bitcoin finds itself in the portfolio of most of the investors. However, what makes it worth buying at this moment is the combination of the market crash and Elon Musk stepping away from making payments in the form of Bitcoin for Tesla. With Bitcoin currently trading somewhere between $34,000 many investors consider it to be a good option because they know that the price would increase in the future and you could earn excellent returns.
Even though Bitcoin is down at the moment, it’s the crypto that people and businesses feel the most comfortable with so it’s long term projection is positive.
The next cryptocurrency, runner up to bitcoin that should have your attention is Ethereum. Personally, I think this cryptocurrency deserves way more attention than what it is getting now. The reason is simple – its blockchain technology is something that forms the base of several other cryptocurrencies. Additionally, with certain competing blockchain claiming to process transactions faster and at lower fees, Ethereum grabs the attention for being the largest and go-to blockchain for DeFi.
Now, my final, personal favorite for a crypto investment is Tether. Tether and XRP often trade spots as the 3rd and 4th most popular cryptos to invest in. At this point, it’s clear that the crypto market is highly volatile. You can lose money in a matter of seconds as prices keep on fluctuating. However, Tether is such a coin that can stand strong against price fluctuations. This is largely because Tether is considered a stablecoin. This means it’s pegged 1 to 1 to the US dollar. Now, you might not make as much money off a stablecoin, but there is definitely less fluctuation compared to other cryptos.
The Tether coin is a result of the combined power of science and academia. Which is why if you follow Tether on exchanges, it’s not majorly affected by market fluctuations.
Further, this stablecoin is also very helpful for transactions that often face difficulty when exchanging money into USD. Legal issues with banks are one such difficulty, which usually other cryptocurrencies face a lot.
Now you might be able to connect the dots as to why banks are reluctant to operate with cryptocurrency exchanges as it becomes quite tedious to convert and deposit funds. Hence, Tether is an amazing coin that can reduce such risks and speed up the process of transactions.
What’s more, you also get to avoid heavy transaction fees. For example, whenever you convert a cryptocurrency to a currency, you will be charged a certain sum of fee. But with Tether, you don’t have to worry about fees and conversion as it is tied to the US dollar.
Unlike other cryptocurrencies, Tether has very few risky elements. Hence, it is considered a stable and safe cryptocurrency to buy. If you see it from a different angle, Tether is something that you can buy and hold cash or any other foreign currency. For example, if there is a prediction of large market fluctuations for the Euro or the U.S. dollar, Tether can be a terrific investment.
I do want to underscore the fact that what I just said is based on my research and my personal opinion. As with any investment, please do your own research and make sure you’re comfortable with your investments. When you start looking at cryptocurrencies online you’re going to be bombarded with information — positive and negative so it’s important to find that middle ground and go with what you’re comfortable with. Start investing a little bit and see how it goes. Incrementally buy more if you like how things are going.
So, I know you’ve been listening to me for a while, and I just want to sum up the key points of investing in crypto.
You have it’s potential for terrific returns. Investing is risky and crypto is currently something that you can lose money in, but if you time it right, you can make a lot with very little work involved. As I mentioned before, I bought a percentage of bitcoin and I’m just keeping it. I’m not sweating about it over the news everyday, I’m just leaving it be and waiting to see what it does.
The second point is that crypto is highly liquid. There’s a market and you can sell it off at a moment’s notice with little issues. That is something you can not do with real estate. Heck, even bank bonds take a couple days to liquidate. Which segues into easy access of your crypto and how a bank or second party isn’t holding it for you. You can buy or sell anytime you want.
The final point that I find most important is the ease and simplicity of investing in crypto. So many times people hear the word “investing” and it sounds alien and exclusive to them. In many ways crypto has made it possible for anyone to invest. Whether you’re living in the US or India or Brazil you can invest in crypto as long as you have a smartphone or a computer. This has been particularly great for people who live in countries where currency inflation is rampant.
And don’t forget, P2P lending platforms, like MyConstant are using crypto to back all loans. We have immense confidence in cryptocurrencies and they’ve protected our investors from any losses.
I think that sort of sums things up. I will just reiterate once more, when you’re considering investing in crypto, do your due diligence, weigh the pros and cons. Unless you’re a crypto prodigy, this is something that we suggest as an alternative investment, not as your primary one.
Thanks alot for listening. If you have any questions or topics you want to hear discussed, send me an email at [email protected]. You’ll hear from me again in two weeks. Have a good week everyone!
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