Benefits of Investing in Cryptocurrency from Mila's blog

Investing in cryptocurrency offers several potential benefits — along with some unique risks. Some of the key benefits include diversification, a potential for high returns, and 24/7 trading access.

Diversification is the concept of spreading out your investments across different asset classes — this reduces risk. Most investment experts agree that maintaining a diversified portfolio is key to long-term investing success.

To diversify a portfolio, investors should choose assets that move independently of one another. Having a mix of stocks, bonds, crypto, real estate, etc., can be beneficial.

Historically, cryptocurrency prices have moved fairly independently of the prices of other asset classes. Adding a small percentage of cryptocurrency to your overall portfolio can help you balance out long-term investing strategies.

Many crypto experts argue that cryptocurrencies like Bitcoin and Ethereum may serve as a hedge against inflation.

The idea here is that there are a limited number of Bitcoins and Ether tokens in existence. As inflation increases, the value of a dollar decreases — making the price of one BTC or one ETH rise in dollar terms.

This is more theoretical than proven, however. Cryptocurrency has too short of a recorded history to really gauge whether or not it can be used as a long-term inflation hedge.

Cryptocurrency has delivered phenomenal returns in recent years. Whether this trend continues is difficult to predict, however.

The graph below shows the 5-year performance of Bitcoin (BTC) compared to the performance of the S&P 500 index fund (which is a collection of the 500 largest companies in America).

Over the last five years, Bitcoin has returned a massive 1,416%, compared to 67% for the S&P 500 index. That’s approximately 21x higher returns for BTC compared to the broad US stock market. And if you zoom out even further, the results are even more impressive for Bitcoin.

In other words, crypto has been a better investment than stocks over the past five years — although time will tell if this trend continues.

But cryptocurrency is also a highly volatile asset, and any potential returns will vary on market fluctuations, transaction costs, taxes, and other factors.

Cryptocurrencies are highly liquid, which means that they are easy to exchange for dollars or other cryptocurrencies. In fact, crypto markets operate 24/7/365. Liquidity gives investors options and helps them make trades when and how they want to.

Other assets tend to be less liquid. Stocks, for example, only trade five days a week during normal trading hours. Assets like real estate are far less liquid, and could take weeks or even months to sell.

Like any investment, the answer to this question depends on an individual’s plans, goals, and risk tolerance.

Looking at recent history, it’s very clear that some cryptocurrency tokens have been excellent investments at times. However, past returns do not predict future performance.

Ultimately, it’s up to each individual investor to decide whether cryptocurrency makes sense for their portfolio. If you have a small appetite for risk, you should keep crypto assets to a small percentage of your overall investment portfolio .

In other words, don’t just invest in crypto — invest in a variety of stocks, bonds, real estate, and maybe some cryptocurrency as well.