Investments are centred around crypto nowadays.
Cryptocurrency is becoming a new go-to tool for both institutional and retail investors worldwide. Over 100 million people around the globe own cryptocurrency, and 62% of global institutional investors are planning on utilising the new type of asset in the coming year.
Despite holding a label of a high-risk asset, investments are getting centred around crypto today. The possibility of the capital increase alongside ameliorating regulatory climate presage a drastic change in sentiment and promise new opportunities for the industry.
Crypto Investment Rationale
If the volatility of digital assets did not stop millions of people worldwide from putting their money into crypto, they probably have sound reasoning. What makes people and institutions bet on Bitcoin and co?
Probably, one of the most popular reasons for corporates and individuals to invest in cryptocurrency is the assets’ long-term potential. Ever since the invention of Bitcoin, the currency has demonstrated a bumpy yet progressive growth. Ethereum, the most utilised platform for blockchain innovations, has been investors’ second favourite choice.
Instant Short-Term Profits
As much as some of us appreciate long-term capital gains, quick short-term profits are what other investors are after. Although this motivation is very risky, people will always be drawn to ‘get rich quick’ schemes, one way or another. The unpredictable volatility causing sudden price surges allows for instant gains. However, the profit is never guaranteed and often stems from pure luck.
Hedge Against Inflation
Inflation is a common issue, and no fiat currency is immune to it. Cryptocurrency, much like gold, is considered a working tool against inflation due to its limited supply. The value-saving potential makes crypto a decent investment material. Critics, in turn, argue that before qualifying for anti-inflation capability, digital assets have to become a solid store of value first.
Each year the regulatory framework of digital assets is getting more sophisticated, creating an enabling environment that, in turn, draws more funds into the crypto industry. As cryptocurrency receives an official legal status, it paves the way to developing an extended infrastructure and leads to tech innovations.
Social Media, Influencers, and Sense of Community
Retail investors are often driven by the sense of community that cryptocurrency has to offer. Although money plays a huge role, the crypto space is somewhat unique.
On the one hand, cryptocurrency enthusiasts often romanticise the technology, firmly believing it will change the grand design of our economy.
On the other hand, the FOMO of crypto is more robust than in any other asset class. Bitcoin millionaires, Elon Musk’s tweets, influencers’ striking $100,000 BTC price predictions, and social media-powered artificial price manipulation is cryptocurrency’s everyday reality. The hype around digital currencies is so loud that it is hard to look away.
Crypto Getting More Accessible
Another remarkable thing about cryptocurrency is that one can invest in it without actually owning it whatsoever. The old school way is to purchase some coins at the exchange and hold them for a while.
Modern investors don’t have to figure out which non-custodial wallet app supports BEP-20 to ERC-20 swaps or what any of these words mean. Instead, they can put their money into ETF, Bitcoin futures, or index funds and free themselves from dealing with coins directly.
Another good news is that if you decide to manage your crypto portfolio by yourself, numerous platforms will allow you to do so without extensive research. Apart from mainstream centralised exchanges, users can easily buy and sell digital currencies via mobile wallet apps.
Moreover, a new generation of crypto investment platforms will allow combining fiat and cryptocurrency accounts and keep all users’ investments in one place.
M&As with Crypto Assets
A few years ago, the idea of using crypto as a mergers and acquisitions payment tool seemed sketchy. However, in 2021, the number of crypto M&A deals has doubled compared to 2020. The crypto-based M&A practice is not widespread yet, but it is gathering pace, signifying the maturity of the crypto space.
Although there are many arguments against using cryptocurrency for M&A transactions, such as an unstable price and lack of regulations, it is not impossible. Putting a collar around the asset’s exchange rate for fixing its value or converting the deal’s total in USD for the actual transfer of value at closing are only a few ideas of how to integrate crypto into the M&A deal.
The complexity of crypto-funded M&As explains that the majority of the known deals were related to cryptocurrency companies themselves. Some notable examples include Binance’s $400 million acquisition of CoinMarketCap and Coinbase’s $41.79 million acquisition of crypto brokerage Tagomi. However, as fiat-to-crypto gateways are getting savvier, it’s only a matter of time before this type of transaction becomes mainstream.
The Bottom Line
A growing number of institutional and retail investors are adding cryptocurrencies into their portfolios. As global regulations keep getting more precise, it raises more trust in the crypto industry and gives the green light to infrastructure development. Traditional and crypto markets have already started intersecting more often, and it is only a matter of time before the line between two investment worlds will blur.