How to protect capital from inflation: will cryptocurrency help in this?
How to protect capital: will cryptocurrency help in this? Risks that analysts warn about and unexpected benefits.
World analysts have named the reasons why cryptocurrencies attract investors as a protective asset. Let’s see how effective such a tool will be. We will also consider examples of how to protect capital with the help of cryptocurrency.
More than 40% of Nigerians believe in cryptocurrency
The management of the Investing.com portal conducted a survey among the participants of the site. About 46% said they are confident in the protective properties of digital coins.
In addition, the survey showed that alternative assets attracted about 50% of the depositors’ budget. In particular, investors refuse securities and bonds. They buy antiques and paintings (also in the form of NFTs), real estate, large cap tokens.
If you analyze the graph of the 10 largest cryptocurrencies, you can see a constant increase. Naturally, drawdowns occur periodically. But, judging by the history of trends, for long-term investment, the outlook looks positive.
For example, in November 2020, Ethereum was worth about $400 per coin. Now the price is approaching $4,200. Such a tenfold growth can reduce inflationary risks and increase capital. Popular tokens are just beginning to be accepted in the world, and the peak of capitalization is still far away.
The rapid growth of the annual volume of transactions with cryptocurrency
$5 billion – this is the volume of transactions with digital assets in Russia in 2021. Other countries, including the EU and the US, are also showing growth. Experts called 2021 the most successful year for the development of the crypto market.
The number of visitors to major exchanges has increased tenfold. The trading volumes of even small coins are $30–50 million daily. Bitcoin, Ethereum and Binancoin update all-time highs.
But is it worth considering digital coins as a 100% guarantee of the safety of funds? Consider opinions and analytics on this matter.
No money protection guarantees
Cryptocurrency is a highly volatile tool. The coin can show +12% today, and sink by -14% tomorrow. According to Artem Deev from AMarkets, digital assets are not effective protection against depreciation.
He is sure that the growth of the cryptocurrency market is due to the pandemic. Traditional investors began to look for new assets and came to cryptocurrencies en masse. When restrictive measures are lifted, the main coins will return to their previous values, Deev believes.
Other experts give analogies with gold. It has always been considered a reliable asset, but BTC is a new generation “precious metal”. It is in it, according to them, that you need to keep funds for protection and multiplication.
However, when forming an investment portfolio, you should not completely rely on tokens. Let’s talk about how to diversify it.
How to protect capital and distribute funds
Despite the high growth rates, it is not worth investing the entire budget in the cryptocurrency market. According to the financial analyst of the Currency.com trading platform Mikhail Karkhalev, cryptocurrencies can become very cheap. Recovery may take several years, as was the case in 2017-2018.
Karkhalev adds: “Not every novice investor will be able to indifferently watch how he loses 50-60% of the deposit in a few months. It will take about 2-3 years to return to the previous value. Such an investor will sell everything and become disappointed in tokens.”
It is necessary to form an investment portfolio in such a way that the share of cryptocurrencies is up to 15%. The rest of the money is better to invest in companies like Apple and Amazon, government securities and precious metals.
Thus, the profits of one sector will cover the losses in another. And if the cryptocurrency boom occurs again, the investor will be able to get a big plus in profitability.
We store cryptocurrency and get additional profit
After adding digital coins to the portfolio, the user has a number of additional ways to earn money. Here are the three main ones:
- course growth.
The first two involve blocking coins for a certain period. An analogue is a term deposit in a bank. When a user “drains” coins, he provides exchanges with liquidity to quickly exchange and keep a stable price. The annual yield is from 7 to 30% depending on the coin. There are high-risk options with interest rates up to 200%.
The growth of the rate implies a simple holding of coins. Bought cheaper – sold more expensive. Only in the case of cryptocurrency it is many times more expensive. Consider Ethereum, which has risen in price 10 times over the past year.
Great prospects for the future
Despite the fact that cryptocurrencies are volatile, they pose a “danger” only for inexperienced users. If you are restrained and analyze the current situation, then digital assets become an extremely attractive tool.
According to experts, investors who are thinking about how to protect their capital should pay attention to the cryptocurrency market. Especially if they live in countries where a significant part of the population is under 40 years old.
This is due to the fact that the level of medicine is improving, increasing life expectancy. In the future, classic pension funds will have to change their approach to cope with the burden. Government bonds and blue chips will not provide the required yield to secure payments.
If countries massively start investing in digital assets, this will positively affect the growth in value. Contributors who purchase cryptocurrency today will reap huge returns for the foreseeable future.
Digital coins are a great way to protect against devaluation of funds. However, you should not buy coins, tempted by high profitability. On the contrary, approach the formation of the portfolio rationally. In particular, no more than 20–30% should be allocated for investments in cryptocurrencies.
“Whales” are increasing volumes. In November alone, they bought almost 100 thousand BTC. The total number of Bitcoins in the wallets of large holders has reached 13.5 million. This may indicate a delayed growth in the rate and continued activity of “whales”.
Tokens are just starting to develop. Soon more countries will accept them. Increase assets on drawdowns, store coins and watch for new promising projects