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Cryptocurrencies are used only for speculation
Myth
Any asset class with some volatility will always attract speculators, and cryptocurrencies are no different. We saw a substantial increase in trading activity over multiple asset classes during global lockdowns, with stocks and crypto being the most accessible to those with a smartphone. Don’t get me wrong, we have seen futures trading activity on crypto over 4x that of spot trading, which shows that speculation is rife in the crypto space, but the same has been shown for stocks. Platforms like Robinhood have made stock option trading so accessible that monthly option volume has 3x in February 2021 compared to February 2020.
While speculators are in crypto, many are buying the asset as a diversification tool or long term investment in a disruptive technology with grayscale investment trust leading the charge owning over 655 000 Bitcoin (3.5% of the circulating supply). This shows that not only are cryptos invested in for the future but the technology is being taken very seriously.
Cryptocurrencies are too volatile to gain wealth in a stable manner
Myth
Yes, the volatility in crypto is high compared to traditional assets in certain sectors. Bitcoin has often been compared to Gold, Banking or Tech, and thus it’s only fair to compare those volatilities. If we use spot Gold (16% 90-day vol), JP Morgan (24% 90-day vol), and Tesla (70% 90-day vol) as a proxy for Gold, Banking, and Tech, we can see that Bitcoin (95% 90-day vol) clearly has superior volatility. Although this volatility may scare potential investors, Bitcoin has seen a 115% increase year over year over the last 10 years. This makes it one of the best, if not the best, performing asset classes in the last decade.
But if this volatility is not your game, there is a stable way to grow wealth using cryptocurrencies, Namely stable coins. Stable coins are simply a digital version of fiat money and are pegged to that currency. For example, USDC is a stable coin that is pegged to the US Dollar, and as such, its value is $1. With stable coins comes the opportunity to create savings accounts or ‘Defi Savings Vaults’ as we like to call them. These Savings Vaults offer a fiat denominated saving account that earns an interest rate well above market (up to 7%).
Now that’s stable growth.
A cryptocurrency is real money that can be used for payments
Myth (for now)
Besides the exception for El Salvador, Bitcoin, and in turn cryptocurrencies, are largely not accepted as legal tender in countries.
Many independent shop owners will gladly accept Bitcoin as payment, but at a governmental level, countries are yet to accept Bitcoin as legal tender.
Cryptocurrencies are a good investment
Fact
As stated above, Bitcoin has seen a 115% increase year-on-year over the last 10 years. This is by far the best asset class you could have invested in. Keep in mind that with compounding those returns, you actually received an astonishing 220 364% return on your investment. Now that’s mind-blowing!
Many may think the run is over, and crypto is on its way down, but you’d be misunderstanding the bigger picture here. Crypto is like early-stage technology investing, and in that same light, it still has a way to go before it becomes a mature asset class and gains significant market share. Thus returns will still be up for grabs.
For many ‘smart money’ investors (i.e. Hedge funds, Asset managers, etc.), the way to look at cryptocurrencies, Bitcoin, in particular, is as a diversification tool in their investment portfolio.
These investors know something special about Bitcoin, but don’t worry, I’ll tell you for free.
Bitcoin is predominantly uncorrelated to most asset classes. Meaning that if you add it to your mix of stocks, bonds, commodities, and whatever else you hold in your portfolio, you actually get more return for the same risk take on. I don’t want to get too technical, but depending on your weighting of Bitcoin, you can actually decrease your portfolio’s risk for an increased return.
“Diversification is the only free lunch in investing” – Harry Markowitz.
Cryptocurrencies are just a fad and will fade away
Myth
While we don’t know which cryptocurrencies will ultimately win the race to dominance, a whole financial ecosystem is being built right in front of your eyes. People get confused and think that because it’s called a ‘currency’ that it has to be used for payments. Meanwhile, most cryptocurrencies are actually early-stage tech companies using blockchain technology to revolutionise multiple sectors and markets. From Banking, asset management, and insurance to healthcare, music, and personal identity, it’s all being built on a decentralised system that finally says goodbye to transporting and fee exploitation.
Whether you believe this is a fad or not is up to you… I’m going to go with ‘not.’
Want to gain exposure to this asset class in a diversified way and take advantage of the ‘smart money’ trick?
At investment platform Revix, you can gain access to their ready-made “crypto bundles”. These bundles allow you to own an equally-weighted basket of the world’s largest and, by default, most successful cryptocurrencies.
For more information about crypto bundles, or a direct way to invest in Bitcoin, Ethereum, Pax Gold or USDC visit Revix.
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