Covid-19 has triggered a disruption wave in the global markets within a year. An important challenge that the industry faces now is whether it is time to hedge to Bitcoin or other cryptocurrencies? The unanticipated effects on the global economy have rattled the investors planning to secure income with the assets that can offer shelter during the pandemic and a hedge against macro events. Due to several factors such as decreasing GDP, economic slowdown, government bailouts, and fiscal stimulus, Bitcoin, and other cryptocurrencies are now predicted as an inflation-resistant hedge.
Crypto assets are defined by their knowable, fixed, and verifiable supply, and they are not obligated to the whims of any political or government regulations. But are digital currencies and bitcoin the right assets that can serve as a hedge? If so, how can an investor increase their investment and exposure to bitcoin while mitigating its downsides?
Investing in Bitcoin
No doubt, as per the current scenario, big companies are buying bitcoin, and the demand is increasing more than ever before, leading to an increase in price. Many people believe in holding on to the currency, whereas some sell the asset for more than they have paid for it. In 2021, bitcoin is viewed as an attractive investment and hedge against traditional investments (like stocks or gold).
However, despite bitcoin’s recent rise, one needs to study and observe the market trends to take careful steps. These days the cryptocurrency appears to be maturing, but one cannot deny the fact it is extremely volatile in both directions. For a regular investor, it is advisable to trade lightly in bitcoin or other cryptocurrencies unless you have secured fundamentals, including emergency fund and basic retirement portfolio covered.
Investing in other cryptocurrencies
The introduction of digital currencies has flooded the market with other cryptocurrencies. Ethereum, Litcoin are the leading examples competing with Bitcoin.
While there are thousands of digital currencies, only a few are worthy of an investment or a potential hedge. If your intuition tells you that the future of finance is in private transactions and fungible digital cash, you might find MXR Or monero more valuable. On the other hand, if you are attracted by the concept of open finance using smart contracts, you can bet on the Ethereum ecosystem.
Here, in this case, you have to first find the priority; if you see the future of finance is pretty good in private transactions, investing in Monroe (MXR) could be seen as a potential option. On the contrary, holding a belief in open finance enforced by smart contracts and witnessing the factor as a major growth area, go investing with the Ethereum ecosystem. As per experts, the smaller the market capitalization of crypto-asset one is investing in, the higher the risk is expected to be. Similarly, it has a higher upside too. In the end, it is imperative that one needs to understands the importance of considering the right cryptocurrency and its function with the blockchain network it uses.
Final Word- No hedge is perfect
As per the current global market trends, institutional investors may see bitcoin as an inflation hedge. Companies such as BNY Mellon, Mastercard, and Tesla are backing Bitcoin, especially during the second wave of the COVID-19 when the U.S and Europe went under another phase of lockdown. The world has witnessed how Paul Tudor Jones calls bitcoin ‘great speculation’. With other hedge fund investors, he invested in Bitcoin in anticipation of rising inflation.
What we do know however is that Bitcoin provides a secured investment option whose design, issuance, transparency, and transferability stand in contrast to the traditional financial system making broader room for the investors. Also, bitcoin has overshadowed the gold market and will continue to attract big investors for its high returns in an era of low yields.
Meanwhile, considering the overall status of regular investors, everyone cannot afford the luxury of bearing the price volatility and wait for the right time to enjoy the decentralized financial product’s high returns.
All said and done, investors should tread carefully with cryptocurrencies in the current market scenario and safeguard their future with a diversified portfolio that includes low-cost index funds.