Getting involved in cryptocurrency has, for many, become an irresistible trend over the past few years. Within this blog, we explore the main reasons why many investors are increasing their portfolio’s exposure in crypto instead of opting for more conventional asset classes, including stocks, money markets, ETFs and bond funds.
Blockchain advocates believe we are at the start of a technology revolution that will reshape the future of finance; Rick Falkvinge claimed, “Bitcoin will do to banks what email did to the postal industry”.
Crypto critics, however, including world-famous investor Warren Buffett, have dismissed the trend claiming: “Cryptocurrencies basically have no value and they don’t produce anything. They don’t reproduce, they can’t mail you a check, they can’t do anything, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person’s got the problem. In terms of value: zero.”
The jury is out as to what the future holds for cryptocurrency. However, what is for sure, is that price drops and governmental restrictions don’t appear to deter advocates. Critics appear likely to remain unsold on the idea until there is widespread adoption.
Who owns cryptocurrency?
Before we highlight the various investment cases behind crypto, we first explore what demographics of the population are buying crypto.
In the Digital 2022 Global Overview Report, it was claimed that more than 1 in 10 working-age internet users now own some form of cryptocurrency. The acceleration in the rate of ownership is eye-catching. According to the report, between January 2021 and January 2022, ownership of cryptocurrencies jumped by more than a third (+37.8%).
Ownership of cryptocurrencies is most prevalent in developing nations. These include Thailand, Nigeria, the Philippines, and South Africa. The widespread ownership in developing countries is attributed to the lack of access to a stable national currency and stable local banking options.
As a working example, the nosedive fall in value of the Turkish Lira has led to a widespread increase in the ownership of cryptocurrencies in Turkey. In the past 12 months alone, ownership of cryptocurrencies in Turkey has almost doubled from 10% to 18.6%.
Age and gender of crypto ownership
The Digital 2022 Global Overview Report found that men are overwhelmingly more likely to own cryptocurrency.
Unsurprisingly, millennials are the age range most likely to own crypto. The COVID-19 pandemic appeared to introduce millennials into the world of investing at a much younger age than was initially anticipated. This was due to millennials enjoying an abundance of time to research and learn during lockdowns, an increase in market access via fintech trading apps, an inability to spend money and an influx of wealth from government stimulus checks.
The rate of ownership of cryptocurrencies steadily declines from age 35 onwards. At the age category 55-64, the ownership rate is 1/20.
Why are investors opting for crypto ownership?
The most obvious reason why investors are buying into crypto is the desire to achieve a return on their investment. Early investors were handsomely rewarded, as the value of Bitcoin skyrocketed from being valued at around $1,000 USD per coin in 2013 to peaks of $65,000 USD in February 2021. GameStop (NYSE: GME) aside, investors don’t generally buy an asset just because it’s going up. They generally buy an asset because they believe in its investment case. So, what is the investment case for crypto?
Low fees and currency considerations
The global currency market is a complicated and often expensive place. Most countries have their own currencies, which all have their own value. These currencies fluctuate in value against each other considerably. This can be problematic for many reasons. One of the main long-term beliefs within the crypto community is that it could remove the need for different currencies. This means that people could trade freely without the need for FX.
A country’s currency can fall in value very sharply upon bad news. The Russian ruble lost roughly 45% of its value in a matter of days following the country’s violent and unprovoked invasion of Ukraine. The idea with crypto ownership is that the value of a person’s wealth is not tied to the performance and stability of a government. This is why cryptos tend to be most popular in countries with less stable governance, as in theory cryptocurrencies holds less risk of collapse. However, critics would generally disagree with this statement.
Finite nature of crypto
The world is currently grappling with high levels of inflation which has been caused in part by governments around the world printing money to keep economies afloat during the pandemic. The more cash that is injected into the economy, the lower the value of the currency. In short, it means that if you hold cash over a long period, its purchasing power declines. If you take Bitcoin as an example, investors don’t have the same problem. The total supply of Bitcoin is finite, meaning the supply cannot be increased. This is why many refer to Bitcoin as digital gold.
Increasingly used as a means of payment
This is perhaps the most important make or break hurdle for the future of crypto. Can it become a widely accepted use of payment? Increasingly certain businesses are accepting payment in crypto. However, the tide isn’t one way. Tesla caused price volatility when they claimed they would no longer accept Bitcoin over climate concerns. But other major NASDAQ stocks, including Microsoft, have adopted Bitcoin as a means of payment.
If Bitcoin or an alternative coin, perhaps Ethereum, does eventually become a mainstream payment system, its value will likely see massive upside in its coin price.
The utility in the illicit economy
Like it or not, crypto has several uses in the illicit criminal economy. From the outset, criminals have made use of the unregulated and secure nature of crypto for various types of transactions. This is because the blockchain network allows users to move assets without detection.
The bottom line
Fintech is making it increasingly easier for people to access digital assets via the internet. The ease of access means no matter what your reason for owning crypto, the steps to access various coins are reducing all the time. Anyone with an internet connection now has access to a global currency from anywhere in the world. That factor is a major reason pillar of the overall investment case.
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