Should you make room for crypto in your portfolio?

Crypto went from outcast to investors’ favorite faster than you can say bull run. One moment, people were questioning its value and existence, and the next, everyone was investing in it, which obviously made many bystanders wonder if they should do the same. There are now over 500 million crypto holders across the world, and with user-friendly platforms such as Binance, investing in a top cryptocurrency has never been easier.  

However, crypto’s growing popularity and accessibility – and the FOMO that comes along – aren’t good enough reasons to enter the market. Just because everyone seems to have jumped on the bandwagon doesn’t mean you should follow in their footsteps. Every investment decision you make should be based on thorough assessment and solid arguments, not impulse and peer pressure. Besides, investors should focus on their individual needs and goals before making a move.

That being said, there are several reasons why you might want to give crypto a try and include it in your portfolio, just as there are reasons to steer clear of this asset class, and we’re going to address both perspectives below.

Reason to invest in crypto

Crypto can turn out to be a great addition to your portfolio, as there are various ways in which it can benefit you.

Diversification

Everyone knows that a diversified portfolio is a strong portfolio. Investing in assets that have different profiles allows you to reduce risk by limiting the potential losses from any of them. From this point of view, including a sensible amount of digital currencies into the mix can be a smart move since crypto typically has a low correlation with traditional investments like stocks and bonds. How much a sensible amount actually means largely depends on your circumstances and what you want to achieve. However, the consensus among experts is that your crypto allocation should not exceed 4% of your portfolio, so keep that in mind when you do the math.

Appreciation potential

Even though crypto resembles a rollercoaster in terms of price performance and can suffer steep declines from time to time, for most digital currencies, the long-term trend has been upward. Take Bitcoin, for example. The leading crypto has gone from being worth less than $0.01 to over $100K at one point, and currently trades in the $90K range.

This consistent growth means that if you hold on to your crypto assets for long enough, you might enjoy considerable returns. Also, crypto’s volatility and the risk it carries, which continues to be a topic of debate in the financial space, create opportunities for outsized gains. That’s more likely to happen with newer coins because they have lower market caps, which increases the probability of sharp price spikes.

Exposure to innovative tech

Crypto is not just an instrument that you can trade and invest in. It also represents the product of a very powerful and promising technology, the blockchain, which has been steadily expanding for the past few years, entering industries like supply chain, healthcare, real estate, and many other areas of activity where it has the potential to make notable improvements.

So, by investing in crypto, you’re not just buying some random digital assets, but also get to support a technology that seems to have a bright future ahead, and gain exposure to the groundbreaking innovations happening in this space. 

Inflation protection

Inflation is a common issue that many countries struggle with. In regions where inflation is high and persistent, people can combat depreciation by investing in assets that can maintain their value over time. While crypto’s ability to act as a hedge against inflation is disputable, many still see it as a solution to protect their wealth. Established coins like Bitcoin and Ethereum are generally the best picks in this respect as they have been able to resist inflationary pressures due to their architecture and tokenomics.

A resilient asset class

One can never be quite sure about anything when it comes to crypto, as the market is still young and evolving, which leaves room for a lot of uncertainty and doubt. But the one thing that no one can deny or argue against is crypto’s resilience. Digital currencies have the unusual ability to bounce back even after the most horrendous declines, when they seem to have hit rock bottom. This proves that crypto is not a fad, as many stated in the beginning, but an increasingly important component of global finance, so you might as well treat it as such. 

Reasons to resist

Despite its many perks, crypto may not necessarily be a great fit for everyone, so let’s have a look at some of the reasons you might want to sit this one out.

It doesn’t make sense to invest in digital currencies if you’re risk-averse and you can’t deal with the stress and drama that come with navigating a highly volatile market. Also, if you already have a good assortment of assets in your portfolio and you’re pleased with its performance, there is no point in going out of your way to rethink your allocations and make room for crypto.

Furthermore, if you’re not familiar with the crypto market and its intricacies, the learning curve can be quite steep. It takes time and patience to learn the ropes of crypto investing, and if you’re not willing to put in the effort, you’re better off sticking to traditional investments. After all, you can have a diversified portfolio even without crypto. It’s not necessary to tick all asset classes under the sun to create a well-balanced holding.

Bottom line

Investing in crypto is an option, not a requirement. It might work great for some, but not for all. So, don’t let external influences sway you from your path. You have to analyze your own situation and consider your personal objectives before deciding if crypto has a place in your portfolio or not.