Is Investing In Crypto A Good Idea?

BY Chris Andreou

|October 28, 2021

Cryptocurrency is gaining ever more traction among investors. Financial technology companies are making it increasingly easier to purchase or trade cryptocurrency. Companies such as Tesla have experimented with accepting crypto as payment, while the government of El Salvador has even made bitcoin legal tender in the country.

As Bitcoin continues to hit new all-time highs, many investors are asking themselves if buying or trading crypto is a good idea. Here are four reasons you might want to consider investing in crypto today.

Decentralised Finance Is The Future

2021 may have been a big year for decentralised finance (or DeFi), but the idea of using DeFi applications (dApps) is still relatively niche. However, the ability to transact currency and send money quickly, easily and securely still holds a lot of promise for the future global economy. That’s why DeFi could yet play an important and mainstream role in our financial system in the years ahead.

DeFi is a financial ecosystem that seeks to replace traditional, centrally controlled financial institutions such as banks and trading exchanges with decentralised versions. There are several benefits to decentralisation, including:

  • Increased access
  • Faster transactions
  • Lower transaction costs
  • Greater autonomy

To get started with DeFi, you can choose from the many thousands of projects currently underway from entrepreneurs and organisations that contribute to the DeFi space (such as our own project, TIOprime (TIOx)). Or you can instead trade the platform that most of them, including ours, use: Ethereum.

There are only a few blockchains that support “smart contracts”, which is what DeFi applications depend on. Ethereum is easily the most popular (bitcoin does not use smart contracts).

Ethereum maintains several key advantages that could make its coin, ether (ETH), a simple and profitable way to invest in DeFi as the future of finance.

For starters, its first-mover advantage gives it a hundred-mile head start over its competitors. DeFi apps benefit from the network effect, whereby their usefulness increases as the network grows, and Ethereum already enjoys broad adoption. This makes it easier to get a DeFi app up and running on Ethereum versus any of its competitors.

Secondly, Ethereum is one of the only viable, truly decentralised choices. Binance Smart Chain, which is the blockchain created by the company behind the Binance exchange, has gained traction by offering lower transaction fees compared to Ethereum. But the Binance network is a centrally controlled entity, as it is Binance who chooses which projects get to run on the network, and retains full authority to throw them out.

Ethereum is taking major steps to address the issue of high transaction fees, and once this issue is resolved, it remains the best, decentralised, equal-opportunity blockchain in the world.

Increased Institutional Adoption

The major element that has set the last few crypto-bull runs aside from the previous price-climbs is the broad adoption of bitcoin by institutional investors. Increasingly, financial institutions are looking to create positions in bitcoin as a significant part of their investment portfolio.

This is important for several reasons. Not only do institutional players create potentially large buy-pressure in the market, but they also effectively remove a large portion of bitcoin from circulation. Bitcoin already has a fixed lifetime supply of 21 million coins, and the reward for bitcoin mining is reduced by half every four years or so. That means that institutional players are reducing an already limited supply of a highly in-demand commodity, which is likely to continue to drive up the price.

Furthermore, there is a big push towards Bitcoin CFDs trading and bitcoin ETFs, which can make it even easier for regular traders to get in on the crypto boom. This could result in even more demand from institutions for crypto.

Diversify From Stocks

If the majority of your trading is currently centred around stocks or forex, then bitcoin, ethereum and altcoins such as TIOx can offer a good option for diversification. The price correlation between stocks and cryptocurrency is almost zero. This means the crypto market isn’t affected by the stock market, just as the stock market isn’t affected by crypto.

As a result, retail and institutional traders could improve their diversification by allocating a portion of their portfolio to cryptocurrency. That said, trading coins such as bitcoin and ethereum can also increase the volatility of your holdings. If you can’t manage the wild price swings, consider allocating only a small portion of your portfolio to margin trading with crypto, while investing another portion in buying small-cap coins that have huge upside potential.

Start Small, Grow Big

At the time of writing, the price of bitcoin is around USD 63,000, while the price of Ethereum is hovering around USD 4,000. That might sound like a lot, but in reality, it may not be.

For starters, cryptos are divisible. This means that you can buy or trade fractions of the coin instead of purchasing an entire coin. For instance, opening a trade for 0.0001 bitcoin will require a maximum margin of around USD 65 in your TIO trading account.

Another factor to keep in mind is that crypto currently lacks regulatory oversight. For institutions to become more completely involved, they would need clear regulation and legislation because they operate with huge sums of money and would seek protection through government oversight.

Once these laws are enacted, and many believe it is only a matter of time, institutions will ramp up their crypto holdings to another level entirely, and the price of cryptos may skyrocket before eventually stabilising. This will increase the barrier to entry for all but the earliest adopters. As the saying goes: if not now, when?

Risk disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Never deposit more than you are prepared to lose. Professional client’s losses can exceed their deposit. Please see our risk warning policy and seek independent professional advice if you do not fully understand. This information is not directed or intended for distribution to or use by residents of certain countries/jurisdictions including, but not limited to, USA & OFAC. The Company holds the right to alter the aforementioned list of countries at its own discretion.

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Trade responsibly: CFDs are complex instruments and come with a high risk of losing all your invested capital due to leverage.