According to all estimates, the year 2021 will be the year of cryptocurrencies. It’s not uncommon to hear of people becoming millions suddenly, prompting widespread FOMO. However, as the cryptocurrency market rises, so do the collective gasps when it collapses 50%. This has all the elements of a thriller, with onlookers and active participants wondering whether they should buy the dip or wait it out.
While digital currencies are undoubtedly a dangerous and volatile asset, they continue to gain popularity as a means of diversification and liquidity. This asset type, on the other hand, requires a balance of caution and strategy.
Assess your risk tolerance before plunging in. The next step is to map out the market. The digital finance ecosystem provides a wide range of investment options and tools, each with its own set of advantages and disadvantages.
The cryptocurrency that is 100% pure-play Investing directly in a coin is the most straightforward method, but it comes with the greatest risk. While its sudden rise to more than $60,000 in value may tempt even the most seasoned investor, be cautious. Bitcoin (and other cryptocurrencies) can climb and fall in value at the same time.
Money in a Basket If investing directly in cryptocurrency makes you uncomfortable, you can diversify by purchasing a “basket of coins.” This strategy entails picking some or all of the top ten cryptocurrencies or putting together a diversified portfolio comprising some of the major cryptocurrencies, as well as some up-and-coming coins with higher upside potential, according to experts.
ETFs (Exchange-Traded Funds)
Traded fund (ETF) is a more traditional way to invest in cryptocurrencies (ETF). Because ETFs are conventional security, they can be purchased through any brokerage/investment account, including IRAs. A crypto ETF, on the other hand, has the same volatility and risk as to the cryptocurrency it represents, so this isn’t going to be a smooth ride.
While there are presently no crypto ETFs in the United States, 13 are in the process of being approved by the Securities and Exchange Commission, and there are a number of crypto ETFs in other countries, including three Bitcoin and three Ethereum ETFs in Canada.
Trusts in Cryptocurrencies ETFs aren’t the end-all solution. Grayscale is well-known asset management that now has Bitcoin and Ethereum trusts available. These are standard publicly traded assets that can be accessed through one’s brokerage, investment, or IRA accounts.
Hedge Funds are a type of investment firm that invests in A crypto hedge fund works similarly to a mutual fund in that it allows investors to invest in a large number of underlying securities. Hedge funds, unlike ETFs, are a type of active asset that is managed by a team of professionals and focuses on high-frequency trading for short-term returns.
There are several direct investment possibilities for getting into the crypto game, but they aren’t the only ones. Investing in the burgeoning, all-encompassing blockchain market could have far more promise than pure-play crypto. In fact, the digital financial ecosystem is rapidly expanding, with assets like as Non-Fungible Tokens (NFTs), digital securities, Central Bank Digital Currencies, and, of course, Decentralized Finance, or DeFi, among the most popular.
Putting money into DeFi DeFi stands for peer-to-peer financial services, which include crypto trading, loans, interest accounts, algorithm-driven cross-platform trade, and other features. In 2020, the DeFi industry’s growth quickened, rising from $700 million to $13 billion. Based on industry statistics from a variety of sources, it is estimated to have reached $40 billion this year.
DeFi Assets (Definition of Financial Instruments) Trading DeFi assets, tokens representing DeFi networks, applications, or protocols, is one way to invest in DeFi. They aren’t for the faint of heart because they come with a lot of volatility and risk.
Staking Staking is yet another way to generate passive money using DeFi. Users place their cash in a crypto wallet to help maintain the operations of a proof-of-stake blockchain system and receive a pre-determined interest rate in exchange. As of January 2021, the entire value of cryptocurrency assets staked on DeFi platforms is estimated to be between $21 and $23 billion.
Farming for Yield Yield farming is the practice of providing a decentralized exchange with liquidity in the form of cryptocurrencies (DEX). The DEX uses this liquidity to fulfill orders placed by fee-paying token swappers. Yield farmers receive a share of these fees in exchange for their contribution, providing additional passive income for your Crypto assets. Yield farming, like staking, requires awareness of the potential loss of value of the coin in a liquidity pool due to crypto volatility.
DeFi Lending is a type of debt financing. Users can utilize DeFi Lending sites to lend their crypto to others and earn interest on the loan. Both lenders and borrowers can gain from defi lending. It lets long-term investors to lend assets and earn greater interest rates, as well as offering margin trading opportunities.
Investing in the Blockchain Ecosystem as a Whole You may find that investing in the entire blockchain ecosystem is the more “safe” route to take after assessing your own personal risk aversion and overall financial objectives.
Stocks in the Mining Industry
It’s vital to remember that the profitability of crypto mining isn’t always linked to the value of cryptocurrencies. You can put your money into mining firms’ or mining-related companies’ stocks, which may gain from the increased demand for processing power for crypto mining.
Stocks with a Blockchain Focus You can also invest in blockchain-related stocks that are publicly traded. Because there are no pure crypto or blockchain stocks, the best bet is to invest in publicly traded stocks with some digital finance exposure, such as CoinBase (COIN), PayPal (PYPL), Square (SQ), MicroStrategy (MSTR), NVIDIA (NVDA), or IBM (IBM).
Should You Invest or Should You Not Invest? In the area of digital finance, there are plenty of investing options. Specific investors may easily find the correct methods that meet their individual needs, whether it’s investing directly in cryptocurrencies or investing in the broader blockchain ecosystem. However, before you get in, read more about each of these investment possibilities, understand their hazards, and determine how much risk you can handle. Taking the time to speak with professionals and conduct your own research, just like any other investment, can assist you in determining the best course of action for you.