Cryptocurrency as an alternative investment

Over the past decade or so, alternative investments have become increasingly popular with investors looking to diversify their portfolios. In more recent years, cryptocurrencies have become a popular choice of alternative investment.

What’s the difference between traditional and alternative investments?

Firstly, certain types of investments can be put into different categories. For example, stocks, bonds, and cash would all be categorized as traditional investments. This is where the money is invested in more “well-known” assets.  Any investment that is not in cash, stocks or bonds would then be classed as non-correlated assets, also known as alternative investments.

Some of the main differences between traditional and alternative investments are liquidity and investment return.

A house invested in, for instance, would need to be sold before the owner could access the funds that it is worth, this doesn’t mean that it isn’t worth investing in houses but more the fact that an alternative investment should only be made with funds that an investor can afford to wait longer to exchange the assets for cash.

Alternative investments tend to have a higher minimum investment requirement than traditional investments; however, they also have higher returns. Even when the market is on a low, then alternative investments will often manage to “hold their own” and be more or less unaffected compared to traditional investments. This was even the case throughout the financial crisis of 2008, traditional investments didn’t manage to pull through it very well, but alternative investments did come out of it well.

This article focuses on alternative investments, some popular types are:

Commodities

Indices

Gold and other physical assets

Private equity

Hedge Funds

Venture capital

Cryptocurrencies

“What’s the difference between traditional and alternative investments?”

Why cryptocurrencies are a good choice of alternative investment

With a wide range of alternative investments to choose from, cryptocurrency has still become an increasingly popular choice of investment in recent times. Here are a few of the reasons that make cryptocurrency a good choice of investment, and why a growing number of people are choosing to give it a try.

  • Cryptocurrencies are becoming more regulated

No longer is cryptocurrency seen as the “wild west” that it was once viewed to be. In recent years there has been a huge increase in regulations surrounding cryptocurrencies, with a lot of cryptocurrency related companies opting to be SEC regulated. In the near future cryptocurrencies are likely to offer much more regulation than some other types of alternative investments.

  • It’s now possible to exchange cryptocurrency for cash with ease

With financial services such as Wirex now available in several countries, it is now easier than ever to convert cryptocurrency to cash or spend it. Unlike most other alternative investments which are illiquid and it can take a long time to get access to those assets; for example, if a rare collector’s item had been invested in it would likely take a long time to find a buyer, it can be also tricky to find out its’ worth quickly. Even if you want to sell cryptocurrency, it would be much easier to find a buyer.

  • A great way to diversify your investment portfolio

Having a diversified portfolio is important for successful investment. Without diversity throughout an investment portfolio, the risk will not be evened out and the portfolio would be vulnerable during times of financial crisis and economic events. By using cryptocurrency as an alternative investment to diversify, these issues could be avoided as cryptocurrency will react to economic factors differently to other investments in the portfolio.

  • Get involved in a growing market As the cryptocurrency market is maturing, the cryptocurrency trading market is growing. Offering hedge options and trading flexibility makes cryptocurrency an appealing choice of alternative investment as it offers some of the benefits that traditional investment provides.
  • Reputable companies and organizations are jumping on the bandwagon

Blockchain is the technology behind cryptocurrencies and the large variety of uses across multiple industries including the financial sector. This has attracted the attention of big names such as Google, Microsoft, Apple and even Key Payments Institutions such as JP Morgan, they simply don’t want to be left behind by innovation. Taking into consideration that blockchain is the backbone of cryptocurrency, it would likely be a worthwhile investment. Blockchain is definitely here to stay for the long run at this point, giving it more potential as a long term investment.

Important things to consider when investing in cryptocurrencies

Although cryptocurrency investment can be an effective non-correlated asset to diversify your portfolio, it will only achieve the desired effect by investors’ first gaining knowledge in cryptocurrency and have the correct strategy and infrastructure. FiCAS offer solutions to help investors get it right and run a successful and diverse portfolio.

Summary

Although cryptocurrencies could be seen as a high-risk investment because it is an alternative investment, like other alternative investments they also offer a higher return. They make a great option for a long-term investment due to the fact that they are likely to remain strong and pull through the financial crisis. It is also easier to both invest in and retrieve the funds the assets are worth than it is with other alternative investment types. Overall cryptocurrencies should be carefully invested in but can provide the best of both worlds in terms of traditional and alternative investment. It has made investing accessible to a wider range of people and has the potential to bridge the gap between alternative and traditional investment.

“A cold wallet is a device that has not any connection to the internet. A Cold wallet is safe and impossible to be hacked, except it is connected to a network.A cold wallet is a device that has not any connection to the internet. A Cold wallet is safe and impossible to be hacked, except it is connected to a network.”