Here's why cryptocurrency should be part of your portfolio

What was termed a ‘bubble’ just 3 years ago gained traction over the past year alone - large institutions started including Bitcoin on their balance sheets. In just a year, the digital asset surged to new all-time-highs. Bitcoin has been declared dead countless times. Yet, there’s no denying the fact that it’s here to stay.

Some countries have approved the Bitcoin (BTC) ETFs, while others have also accepted it as legal tender. The digital asset created in response to the global financial crisis of 2008, is doing what it set out to do in a lot of ways.

Like the Internet, Bitcoin is doing what the former did a few decades ago - Disrupting a sector. With inflation fears looming large, digital assets pose an opportunity for investors to park their wealth in. Bitcoin’s store of value thesis is being put to test as it faces increased institutional participation and adoption.

This generation and the ones that follow prefer all things digital - owing to its ease of use and instant gratification. When it comes to money, it doesn’t seem to be different. The generation wants higher returns on a quicker time frame. Comparing BTC prices from Oct 2020 to Oct 2021, Bitcoin has registered a 500 percent growth.

For instance, if you had invested Rs 1,000 in BTC the previous year (when BTC was priced around the $10k range), it would have appreciated to Rs 5,000 this year (when BTC was priced at the $60k range). Traditional savings methods do not present such lucrative gains. FDs usually give an average return of 7 percent. With Digital assets, the risks and returns are higher owing to the market’s volatile nature.

Why is bitcoin turning into an ideal retirement portfolio must-have for millennials. This generation witnessed several financial crises, caused by bankers playing fast and loose with investors’ assets. This generation bore witness to the downfall of “safe” investments like houses and stocks — so the market volatility seems like a risk worth taking for this generation.

The other disruptor - The Internet shaped and moulded this generation. They are defined by the digital world. So bitcoin - digital gold seems a natural fit for them compared to the metal that provides paltry returns in comparison.

Before you start investing in digital assets, the prudent step would be to research each coin’s tokenomics. What is the project’s raison d’etre? As you initially start your crypto investment, an initial 2-4 percent exposure to digital assets would be ideal. As you gain exposure to the market, and gain insights into trends you can increase your crypto allocation. In the crypto market, Bitcoin rules the roost. Altcoins’ movements are dictated by the king coin’s movements. Your crypto allocation ought to include Bitcoin to the maximum potential. Ethereum deserves a sure-shot slot, while you can spread the rest to other altcoins.

Investing in the right digital asset can be tricky. It’s not a case of one-size-fits-all! What needs to be taken into account is the project’s reliability and key characteristics. Trust is at the core of any financial system. For example, the value of Re 1 is given to it by the trust people have in the fiat and the financial system governing the process. Similarly, when it comes to digital assets, one needs to look at the collective trust a coin’s community places in the underlying mechanism of the project.

Other features that contribute to a project’s USP include its supply conditions and its Raison d’etre. Whether the coin’s supply is finite or not can determine its worth. Every project tries to solve a bigger problem, and this narrates the coin’s reason for existing in the market. Other points to research on include transaction cost, transaction speed, divisibility.

The future of money is electronic, our assets and investments have undergone a digital transformation, accelerated by the pandemic. While investors are looking for new ways to diversify their wealth, concerns over regulatory guidelines and volatility are holding back many from taking the plunge. The sharp meteoric rise of crypto cannot be ignored by any investor.