Institutional investors are starting to show more interest in cryptocurrencies, following Bitcoin's mainstream acceptance and long-term price rise.
Asset managers plan to increase their positions by purchasing cryptocurrencies directly or investing in firms and stocks that benefit from cryptocurrencies.
In this article, we'll cover some of the frequently asked questions from individual investors.
Should you try Bitcoin and other cryptocurrencies?
The biggest players in the cryptocurrency industry have long been individual investors, but the question posed among asset managers today is "who has not added crypto to their portfolio"?
Several different factors contributed to this shift in views. Traditional finance has not been very fond of cryptocurrencies for a long time. 10 years ago, many hedge funds were not even looking at cryptocurrencies as a viable investment option. In contrast to the stability and manageable risks presented by familiar stocks and bonds, Bitcoin looked complex, new, highly volatile, and not yet known in financial circles.
The problem wasn't that the trust managers were unpopular with new technologies; after the dot-com bubble burst a decade ago, it made more sense to avoid new, untested, highly volatile technologies. Although it had not conformed to the norms of traditional finance, and although its potential was heavily defended by its fans, support and global adoption were not rising.
Today, many things have changed in the industry. First, adoption has risen dramatically. The use of cryptocurrencies for cross-border payments has become quite widespread, and more and more people are seeing Bitcoin as a store of value and a hedge against inflation, as well as the weakening of fiat currencies due to the pandemic. The monthly crypto trading volume increased from $346 billion in December 2017 to $2.3 trillion in May 2021, judging by the numbers TheBlockCrypto showed.
In addition, more and more mainstream organizations have adopted cryptocurrencies and offer crypto services to their customers. While startups like Tesla hold Bitcoin, Microsoft, Overstock, and Starbucks are now accepting cryptocurrencies as a payment method. Currency merchants such as Paypal and Square also allow their users to purchase cryptocurrencies through their platforms, while the U.S. Currency Regulatory Agency (OCC) has allowed banks to offer crypto escrow services to their customers.
There is more news about cryptocurrencies in the mainstream media as well. Tech leaders like Elon Musk and Jack Dorsey have also openly expressed their support for Bitcoin, and many crypto critics have changed their minds about the technology.
Stepping into cryptocurrencies is easier than ever these days. The cryptocurrency ecosystem has grown significantly, but there are still serious risks in crypto investments. Examples of these risks are volatility and the openness of cryptos to speculation.
However, despite their short history, cryptocurrencies have shown steady and positive growth, making themselves a viable option for long-term investors. It was only a matter of time before institutional investors seriously reconsidered cryptocurrencies.
Should I invest in crypto?
It is common knowledge that people have made money from cryptocurrencies. Bitcoin's value has increased by almost 400% since the beginning of the year. Bitcoin, which jumped from $ 9,000 in mid-2020 to $ 32,000 in July 2021, reached an all-time high of $ 64,000 in April 2021. A $1,000 investment during this period would have earned close to $3,000 in profit.
Recent events suggest that asset managers and hedge funds are recognizing this profit opportunity, as there has been a fresh influx of institutional money into cryptocurrencies since the beginning of the year.
According to a study of wealth managers commissioned by European investment firm Nickel Digital Asset Management, MicroStrategy, GrayScale, Tesla, and Galaxy Digital Holdings have each expanded their portfolios to include cryptocurrencies, and many institutional investors experimenting with crypto assets are planning to increase their positions.
According to the international survey covering 100 institutions, 82% of respondents plan to increase their crypto and digital assets by 2023. He cited the development of regulations in the cryptocurrency space as the main reason for increasing their positions.
These key findings shed light on the incredible journey cryptocurrencies have gone through since Satoshi Nakamoto published the Bitcoin whitepaper, but looking at the current situation, it's clear that cryptocurrencies are still at the beginning.
How much should I invest in?
Although cryptocurrencies have huge profit potential, it can be useful to try and see. Although many areas have improved over the past decade, crypto prices are still very volatile and open to speculation.
The ideal amount an investor will devote to cryptocurrencies largely depends on their risk tolerance and financial capacity to bear losses. Many asset managers who invest in crypto for their clients recommend that investors dedicate 0.5-1% of their total portfolio to crypto. Considering the market cap of cryptocurrencies is only 0.5% of global stocks and bonds, 2% is considered aggressive.
Those who are confident in managing their risk should start small and buy fixed amounts of cryptocurrencies at regular intervals until they have accumulated enough crypto assets to meet their target quota. Known as Dollar Cost Averaging, this crypto approach makes it less likely to buy crypto when the market is up.
Also, knowing about the crypto world and industry best practices will help manage the risks involved in investing in this volatile asset class.
What should I buy when stepping into the cryptocurrency world?
One of the fastest and easiest ways to step into the world of cryptocurrencies is to create an account on leading cryptocurrency exchanges such as Binance and buy Bitcoin. You can also become a client of a trading platform that offers Bitcoin, such as eToro and Robinhood.
Another way to step into the world of cryptocurrencies is to buy shares of institutions, trusts, and funds that invest in crypto. Grayscale Investments LLC holds approximately 650,000 BTC and allows investors to buy and sell their shares like any other publicly traded asset. The trust charges a 2% annual fee and can trade at a premium or discount depending on the value of the Bitcoin it holds.
Major brokerages like Fidelity Investments do not allow their clients to buy cryptocurrencies directly, but they do so themselves. At the same time, customers get an asset that reflects the value of cryptocurrencies and, at the same time, they avoid the risks of directly trading cryptocurrencies.
Should I diversify my cryptocurrency investments?
Some cryptocurrency enthusiasts prefer Bitcoin because of the size of the network and first mover advantage. Others have learned from the dot-com incident and would rather see the benefits of subsequent crypto projects.
Since scams are common in the crypto world, it's wise to do your research and keep your investment low when it comes to little-known tokens.
According to PwC's report, 92% of crypto hedge funds are trading Bitcoin, 67% are interested in Ethereum, and 34% and 30% are trading Litecoin and Chainlink, respectively. Among the findings in the report is that some altcoins favored by hedge funds are more popular than their total market caps reveal.
In order to benefit as much from crypto diversification as possible, it is important to identify the key players in the market and know the links between Bitcoin and the fundamentals of macroeconomics, as well as identify the relationship of Bitcoin sentiment to other crypto assets through price cycles.
However, Bitcoin's history is very short, and there are many factors affecting its price that make it difficult for an investor to accurately predict price movements.
How often should I rebalance?
The recommended approach to managing a diversified portfolio is to buy and hold assets and rebalance them annually after a performance review. However, if volatile assets such as cryptocurrencies are part of the portfolio, it would be wise to rebalance more frequently.
It can be ideal to rebalance consistently once a month or when your spread deviates by 1% from your target.
At this point, as the Hafizebot team, we are working for you in terms of risk management and analysis, to support you, the users of the cryptocurrency market, to help you make more stress-free trades, and to prevent time loss at the point of analysis and research.
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