The 2008 financial crisis has left an extremely bitter taste in the mouths of investors. In fact, the crisis is often prefixed with the adjective “global”, because the bursting of the 2008 credit bubble truly was a global phenomenon. It seemed like no one was safe–American and European banks were saddled with debt, financed by other global institutions. Even the innocent homeowner was rocked, coupled with retirement account balances being cut in half.
As debt piled up and home prices skyrocketed, investors were all too eager to gobble up whatever returns were thrown at them. Debt grew rapidly as prices continued to go up. It was too good to be true–until it was.
There are a variety of reasons why the 2008 financial crisis happened as it did, the primary reason being an obsession with debt. And while many are too quick to point the finger at big banks and greedy traders, there is truth to the statement that the crisis wouldn’t have happened, or at least been as bad, if there weren’t such a preponderance of complex trading mechanisms–derivatives like swaps, as an example. Long gone are the days of trading vanilla stocks, bonds, and commodities.
Cryptocurrency investors are at a similar crossroads–referring not to the supposed bitcoin bubble, but in terms of the products offered. As their price continues to rise, many are working on developing new ways to invest their cryptocurrency. Many cryptocurrency traders are aware of the heights to which the coins have soared, causing them to pause in light of increasing volatility. They rightly desire diversification and alternative investing methods.
In the wake of these desires, some blockchain companies are working on developing platforms that function similar to traditional brokerage and banking services. These platforms will enable cryptocurrencies to manage risk, not just assets.
What cryptocurrency investing strategies are most common today?
Year to date, Bitcoin is up approximately 320%. Those who bought Bitcoin at the beginning of 2016 would be sitting on some pretty nice capital gains. The rapid run up in cryptocurrency prices has led many to follow a simple buy and hold strategy with digital coins. Rather than try and predict future movements, these investors have been able to watch their positions soar in value.
Some have taken a more active approach to investing in Bitcoin. Rather than hold a position for a long time, traders try to predict movements in prices. Their goal is to buy low and sell high, and repeat the process frequently to achieve maximum gains.
Another investment strategy is to trade derivatives contracts like crypto options and futures. These can be used to hedge existing positions, or to make bets on the future movements of the currency. These contracts allow investors to use leverage to amplify their gains. Traders must be well educated when trading these contracts, however, because in some cases, the downside risk is unlimited.
What is looming on the horizon for cryptocurrency investors?
Within the cryptocurrency sphere there has been a big push to make digital coins more accessible to the masses. This fundamental premise is in large part what led to the Bitcoin hardfork in August. One mainstream fund company, ProShares, recently filed for long and short Bitcoin ETFs. It seems that more and more, cryptocurrencies are moving into the traditional finance sector.
Several companies are at the forefront in welcoming this change. They see the benefits of a decentralized blockchain system while at the same time utilizing the benefits of traditional brokerage and banking services.
These companies are in the process of creating traditional brokerage systems that can house user assets, i.e. their wallets and coins. Through blockchain brokerages within these platforms, like Cryptopay, investors can reduce exposure, possibly into traditional asset classes like stocks, bonds, and fiat currency.
This will add diversification to a portfolio, lowering risk over the long term. The services will allow users to buy these assets using crypto coins. Rather than converting from Bitcoin to USD and then purchasing stock through a firm like Schwab or Fidelity, investors can purchase stock directly from the blockchain platform.
Blockchain companies are also realizing the benefit of offering bank services to cryptocurrency holders. They plan to provide their clients’ payment accounts with an international banking account number along with their personal name, but the accounts will still be funded by cryptocurrencies. The hybrid account will act similar to a traditional bank account, able to process payments and make transfers in cryptocoins.
Some oppose the integration of blockchain technology into mainstream life. Others see the benefits and are hoping to capitalize on an opportunistic branch of a still evolving market. Cryptopay have already made a tremendous impact in this way, offering traditional products like crypto wallets and digital debits cards while simultaneously building brokerage and banking platforms. Furthermore, the company is currently conducting its ICO which will last through November 30, as well as a general call for partners which will also continue throughout the ICO period.
As blockchain technology and cryptocurrencies increase in popularity, adaptive solutions will continue to grow in demand. As more and more desire to bridge blockchain technology with everyday life, companies that can anticipate trends will be able to revolutionize the way the world works.
Featured image from Pixabay