Learning how to invest in general can be intimidating to most people. The complexity of cryptocurrency can be on another level entirely. A new technology that has the potential to disrupt a wide range of industries certainly attracts attention. And while the returns thus far have been nothing short of spectacular, a lot still needs to be proven before people view the asset class less as a speculative tool and more like a legitimate wealth generator.
If you're seriously considering investing in cryptocurrencies, you've come to the right place to help you find the answer.
It depends on what you believe
According to McKinsey, a consulting firm, the amount of wealth in the world today is north of $500 trillion. This figure includes financial assets, like stocks, bonds, and cash, and real assets, like machinery, equipment, and real estate. This value more than tripled from 2000 to 2020.
As things stand today, the entire crypto ecosystem, worth $2 trillion, makes up less than 0.5% of global wealth. Even as the cryptocurrency market skyrocketed more than 11,500% over the past five years, this is no doubt still a tiny amount in the grand scheme of things.
You must be wondering what I'm trying to get at by throwing out all these crazy numbers. Well, whether or not you should invest in cryptocurrencies boils down to one question: Do you believe that crypto's proportion of global wealth will increase or decrease in the future? There's no need for a complex financial model. At a high level, it really is that simple.
In my opinion, cryptocurrencies will grow their share of total worldwide wealth. I believe this for two primary reasons. First, the entire industry has proven its resilience and shown that it isn't just a fad. Crypto rose in popularity and garnered a lot of attention in 2017, and prices soared. After values came crashing down, crypto flew under the radar until after the pandemic took hold in mid-2020. Since then, we've seen a steady increase in value, as well as significant innovation.
And this leads me to the next point. There is so much talent gravitating toward crypto that it's hard not to believe that this technology is here to stay. Similar to when the internet first came onto the scene in the late 1990s, digital assets are a playground for speculation, but more importantly, for entrepreneurs looking to build viable businesses. As a result, I think it's a safe assumption that cryptocurrencies will increase their share of global wealth over time.
Here's a good place to start
A good rule of thumb is to only invest money into crypto that you are comfortable losing. Even with the astronomical rise of crypto prices, we can't forget that this is still a nascent and volatile asset class that has a lot left to prove. Only you know your financial situation, but even more importantly, only you know your psychological makeup. Therefore, investing an amount that allows you to sleep well at night, while not having an adverse impact on your financial picture should things go downhill, is vital.
Once you've settled on a dollar amount, Bitcoin (BTC 0.25%) and Ethereum (ETH -1.12%) are excellent places to start. Both have long track records, deep developer networks, heightened institutional interest, and liquidity. Combined, they make up about 59% of the entire crypto market.
Created and released in 2009, Bitcoin was the world's first cryptocurrency project. It is a decentralized payments network, a system that allows anyone in the world to send money to anyone else with low (or no) fees. The breakthrough innovation was that all of this is possible without the need for a central authority. Bitcoin is slowly gaining mainstream adoption as a legitimate payment mechanism.
With its current value approaching $400 billion, Ethereum is the next prominent cryptocurrency behind Bitcoin. What makes Ethereum different, and better to some, is that it is a programmable blockchain. Self-executing software, known as smart contracts, can be built on top, again without the need of a central authority. Ethereum has spawned massive innovation with decentralized applications and non-fungible tokens (NFTs).
Hopefully you now have some clarity when it comes to investing (or not) in cryptocurrencies. It's an exciting, fast-changing, and disruptive technology that should be on everyone's radar.