“Crypto is the future”, you may have heard a lot of people say this line. Had this been said a year back, anyone could have criticized the statement. But today crypto is not what it was a year back. There has been an enormous amount of development in both the technology and valuation of cryptocurrencies. But is it still worth enough to be in the long-term investor’s portfolio? It is not a simple answer, and neither is investing as a concept. To help decide whether or not you should invest in crypto and have it in your long-term portfolio read through this article?
A year back on this same day the valuation of the total crypto market was around $400 Billion. Today, the valuation of the overall crypto market stands at $2.724 Trillion. That is close to 7 times jump in the valuation of crypto. And some people may think that with such high valuations we may have some reforms or understanding of this technology will work in the future. But the answer to that question would be a big “no“. Although the crypto market valuations have gone through and far above the roof, but still the majority of people do not understand the crypto concept. The majority of people do not use crypto in their daily lives either.
When a particular technology gets that big, like Amazon, Apple, Google, Microsoft, Facebook, etc. It starts affecting people’s lives all over the world, in some way or another. It could be a good change or bad. With this kind of growth, cryptocurrencies have made themselves heard by a lot of people, but not understood.
Should you invest in Crypto?
For consistently gaining value in the market, the asset needs to be understood by the broader public. When people make a long-term portfolio for themselves, they don’t randomly add assets to it. It is based on the belief that the company or the asset will grow in the future, giving them consistent returns.
Rational people don’t put assets in their long-term portfolios for short-term trends in any asset class. A long-term portfolio is never meant to be filled with speculative assets. And cryptos, which work on Blockchain technology, is a rather complicated asset for the general public to understand.
It depends on the level of education or knowledge of a particular individual. But people who have the basic knowledge of things, even such people find it extremely difficult to understand the concepts and working of cryptos. So, how can such people invest in such an asset that they can’t even understand properly?
The valuation of cryptos has shown a dramatic increase in the past year. But it has not shown any proof that it could provide consistent returns. Even the cryptos that are at the top of the chain, Bitcoin, Ethereum, and Binance Coin, are not stable enough to provide a consistent CAGR return.
So, if you don’t understand the asset, and there’s no past evidence of it providing consistent returns over the years then how can you add it to your long-term portfolio. People are still trying to work up the role of cryptos in their lives in the future. Some major nations have gone to the extent of banning crypto in their nations. Such factors possess a huge risk to the future of cryptos.
Who should Invest in Cryptos?
There are two main problems I have mentioned above, against investing in cryptos for the long term. First is its reliability to give consistent returns in the long term. The second was the understanding of the individual of the working and concepts of cryptos. Which will help give the ability to decide the right token to invest in. So, only people who properly understand the working of a particular token/coin should invest in Crypto. Also, it would be better for the younger generation who is capable to survive the recessions in the crypto industry and be in it for the long term can invest.
It would still be a high risk to have it in your portfolio. But still, if you believe in that technology to develop in the future, you should go with your gut. But your gut should not be simply based on a surge in valuation in a short period, or a meme, joke, or a friend’s recommendation. It should be based on self-belief, research, and understanding of the market.