Crypto as an Inflation Hedge: Exploring the Lesser Known Benefits for Your Investment Portfolio Cryptocurrencies are the new talk of the town.
Being an unfavorably famous digital currency, they are allied with events like fraud, theft, and even bootleg marketing. However, the approach of cryptocurrency offers several imperative perks too.
Though everyone is aware of its decentralization, speedy, and independent nature, some oblivious elements are yet to be disclosed. Hence, in this article, we delve into one key advantage of it and seek how it can be utilized as an inflation hedge.
Understanding Inflation Inflation is probably everywhere around the world today. For example, the USA is exposed to an annual hike rate of around 4-5%.
Try to think about this number. This means that the US dollar loses value at 5% annually, which is valid for any fiat currency.
What Happens to Your Money? Now think about your own money that you are keeping in the bank. No matter where you are in the world or what currency you use, the money you hold in your bank constantly loses value.
Just as a reference 100$ in the 1960s would be worth 1000$ today!
So what can you do about this?
What Can You Do About It? As we saw, this is not a new problem, and strategies for overcoming this have been around for a very long time.
There are many tactics, known as inflation hedging instruments, that try to combat this issue. Most common are bonds and commodities, both of which have significant limitations.
For example, bonds aren’t effective in periods of high rise, and commodities, for example, gold and oil, their effectiveness vary on different geopolitical factors like demand and market speculation.
Combating Inflation Through Cryptocurrencies So what means is there to use as a hike hedge? Consider the use of them for long-term holding of assets, better known as cold storage.
There are many currencies and wallets to choose from, but if this article inspires you, then you should choose the best cold storage wallet for you.
Spreading Out Your Investment Portfolio By diversifying your investment portfolio into different assets of different types, you can efficiently and effectively mediate the effects of a hike on your capital.
A spread-out paper will guarantee that at least some of your assets are subjected to lesser loss in the event of high inflation.
These are becoming increasingly helpful in this area as they are promoted to be different from crypto rather than an alternative.
Why is Our Crypto Inflation Hedges Better? As mentioned above, crypto is not similar to any casual fiat currency, regular trends involving fiat money have no considerable impact on the market as crypto does.
Before investing in any currency, it is important to do thorough research and figure out the best option for yourself. As it is volatile in nature, certain stablecoins are also out there to even out over time.
Doing Your Own Research Binance, a popular crypto, NFT, and other digital assets trading platform, is the most prominent advocate for doing your own research.
Crypto can indeed be an excellent option for price rise hedges. However, you have to be comfortable with the volatility of all the markets in the space and have the patience to wait for the exchange to even out before making any withdrawals.
Nevertheless, research, read, and learn from reputable sources to check if this inflation hedge suits your financial goals.
The Importance of Diversification and Proper Portfolio Allocation Suppose you are still not convinced of the benefits of it. Consider the other benefits of using the crypto space.
It can be an excellent diversification option for your portfolio. Any great investor will tell you that one of the most essential things in finance is the diversification of assets across multiple markets and multiple fields.
Reputable Investors that Use Crypto There are many famous, reputable investors that have included crypto in their investment portfolio are:
Paul Tudor Jones Kevin O’Leary Mark Cuban Raoul Pal Building Resilience and Stability The independent autonomous quality of it makes it a favorable option to invest in, as it is diverse from other trade and marketing standards. In spite of the fact that the fallout of the global market disrupts the trade, the aftereffects are not robust.
Regardless of any cryptocurrency you commit to, a diverse portfolio will always help you save your capital from global market disruptions.
Conclusion In conclusion, it is essential to do in-depth research on any currency you’re planning to put your money in. You can also get assistance from a financial advisor for better guidance and insights. Also, do not forget to have a diversified investment portfolio to eliminate the risks of damage.
