4 reasons to add cryptocurrency to your investment portfolio
Any savvy investor understands the importance of diversification. It is critical to diversify your holdings in order to hedge against risk and to increase the chance of long-term returns. Investing too heavily in one asset or asset class can open your portfolio up to significant risk if that asset were to suddenly tank.
It is for this reason that investors have been diversifying across stocks, bonds, real estate, and so on for decades. Now, an increasing number of individual and institutional investors alike have begun adding digital assets such as cryptocurrency to their investment portfolios. A recent study by Yale economist Aleh Tsyvinski even concluded that bitcoin should take up roughly 6% of every portfolio for optimal construction.
Still, not everyone is convinced of the potential of diversifying through cryptocurrency, largely because many still lack a firm understanding of how these digital assets behave and what their true value really is.
Here are four of the primary reasons cryptocurrency can have its place as a valuable vehicle within a balanced investment portfolio.
Note: We are not financial advisors. Please do not use the information in this piece to make any financial decisions.
Cryptocurrency is an anti-inflationary asset
This year, we have seen a historic level of money printing in order to help bail out corporations and to help reduce the national debt. But because of this money printing, we have also seen a historic risk of inflation, reducing the value of dollars held in our savings, investments, and wallets.
The supply of bitcoin and many other cryptocurrencies, however, is fixed. This means its value can never be altered by creating more currency. Crypto is also decentralized in nature, which protects it from manipulation by any government entity or central bank.
It is for these reasons that an increasing number of investors have begun turning to cryptocurrency as a safe haven inflation hedge, much as they have with gold in decades past.
Cryptocurrency is highly liquid and highly portable
Liquidity is important, especially in times of economic crisis, and cryptocurrency is the only store of value traded 24/7 throughout the course of the year. Amid financial turmoil that can shut down businesses and cause individuals to lose their jobs, crypto can still be turned to as a form of money that can be quickly converted and spent.
Cryptocurrency can also be transferred and accessed globally at the tap of a finger – another critical feature in times of closing borders and global shifts.
Cryptocurrency has an average correlation of zero
The rolling one-month correlations for digital assets range from slightly negative to slightly positive with an average correlation of zero. This indicates that digital assets like crypto can indeed be relied upon as diversifying vehicles within balanced multi-asset portfolios.
There also exists an imperfect correlation between digital assets within the asset class itself, showing that diversifying across different forms of cryptocurrency can also have significant advantages.
Digital assets are not going away
Digital assets such as cryptocurrency are here for the long haul, and experts agree. Even bitcoin has already been around for more than a decade, which is something few would have predicted in its infancy.
The primary reason for this is the increasing role blockchain – the technology behind cryptocurrency – is playing in various key industries around the world ranging from healthcare and supply chain to agriculture and beyond.
What this really means is that whether you invest in cryptocurrency or not, it is going to at the very least have a residual impact on how your portfolio behaves in the long term. Adding a small percentage of crypto to your portfolio can allow you to take advantage of its benefits while opening you up to potential gains without risking your larger investment goals.
How to add cryptocurrency to your portfolio
There are essentially two ways to enter cryptocurrency into your possession – buying and mining. While buying is fairly simple and has fewer cost variables, mining puts you in control of crypto from the moment it comes into existence and is also the best way to ensure the continued health and operability of crypto networks. In short, mining both enters crypto into your possession and helps promote its future value.
Three keys to mining profitably center around selecting the right hardware, finding cost-efficient hosting, and identifying a professional hosting partner capable of overseeing your operation and ensuring optimal performance and uptime. This is often accomplished through TIER 0™ data centers designed for this type of hardware and the hands-on approach of managed services.
Diversify your portfolio with support from Compute North
As the crypto landscape continues to grow, there has never been a better time to diversify by investing in the future of digital assets.
Compute North owns and operates state-of-the-art facilities designed specifically to make the most of blockchain technology. We have the vision to adapt to market demands, recognizing there are many applications being designed that do not require maximum uptime and hyper-scale redundancy. Each of our campuses is constructed in a strategic location across the U.S. to allow users to focus solely on ROI and less on logistics.
With years of mining colocation experience, we have best-in-class solutions designed to help you maximize business operations. Benefits of our services include:
- Cost-competitive infrastructure powered by renewable energy
- Secure environment to keep your hardware and your data safe
- Core infrastructure with power, space, ambient air cooling, internet access, physical racks and security
- And more