It’s a question many people are asking around the world — “is it a good time to invest in crypto?”
As you might expect, the answer is a little complicated. It’s impossible to give a definitive yes or no answer, but we can look at your Bitcoin investment strategy and analyze the factors that will give you the best chance of success.
Is Now a Good Time to Invest In Crypto: Issues to Consider
2021 has been a year where cryptocurrencies have firmly established themselves in the awareness of the general public. You can’t help but hear news about crypto, and this has caused many to ask whether it’s a good time to invest in crypto.
When contemplating a Bitcoin investment strategy, there are some important issues to consider.
One of the biggest factors in both the short-term and long-term value of crypto is regulation.
As we’ve seen with China’s crypto ban, major regulation can have a huge impact on the immediate price of Bitcoin. However, it’s even more pertinent when it comes to the long-term value.
Backing Bitcoin or any other currency long-term is a question of where you see it fitting into society. What will decide this, in part, is regulation.
In the US, there’s a host of regulatory bodies, including the Federal Reserve, Security and Exchange Commission, and IRS that could have a say. Gary Gensler, chairman of the SEC, has said that investors “are likely to get hurt” if regulation is not introduced, but as of yet, no meaningful steps have been taken.
Likewise, there’s an obvious incentive for the IRS to become involved in crypto regulation.
The question is, what effect would regulation have on crypto as an investment?
It’s easy to look at China’s recent regulations and assume it would be negative, however, it depends on the nature of the regulation. Many see regulation as a big positive for crypto markets, giving investors greater confidence and making it easier for people to stay compliant.
Like everything with crypto, there’s no definitive answer meaning your Bitcoin investment strategy needs careful consideration.
Cryptocurrencies started off as a very niche pursuit. They were the preserve of the tech-savvy, perhaps even the slightly eccentric. 2021 has seen a change to that with Bitcoin, in particular, becoming much more mainstream.
A big part of this has been institutional adoption.
A handful of big-name companies have been holding cryptocurrency for quite some time now, but this has been the year where more and more companies have embraced cryptocurrency and blockchain.
It’s hard to underestimate the vote of confidence that a big brand embracing crypto shows. If individuals are seeing brands they trust tie their futures into crypto, then it’s a big deal.
Companies like Paypal investing in and giving such prominence to crypto reinforces the belief that crypto is mainstream and is here to stay. If a giant like Amazon or Walmart were to follow suit and perhaps even allow Bitcoin payment, then it’s going to be a massive boost to the authority of crypto.
If some of the biggest brands in the world are exploring their possibilities, then is now a good time to invest in cryptocurrency?
At the moment, the direction of travel seems to be towards institutional adoption, but again, we just don’t know what will happen. As we’ve seen with Tesla (although it’s continued to hold currency), it’s easy to flip-flop over these decisions.
Investments aren’t just about whether you think something is going to go up or down in value. It’s also about convenience, security, the ability to offset risk, and many other factors. Cryptocurrencies are competing with endless other investment opportunities, so these factors matter.
Many investors want to invest in crypto in ways they’re familiar with. This means doing so through trusted brokerages, on accounts they’ve been trading on for years. Holding cryptocurrency isn’t an attractive option for many of these people, so how do you enable them to create a Bitcoin investment strategy?
ETFs (exchange-traded funds) are one way this is likely to happen. These funds allow traders to invest in a wide range of shares, generally focused on a specific market such as crypto, all in one package.
A major step towards this was taken with the debut of the BITO Bitcoin Strategy ETF, however, this is just a step. BITO is linked to Bitcoin futures rather than the currency itself and it doesn’t hold any crypto.
It’s up to the SEC to approve ETFs, so it remains to be seen what options will become available to investors. As with institutional adoption, the more mainstream crypto can become, the more authority it gives it.
Bitcoin Investment Strategy: How Should You Invest?
As we’ve seen with ETFs, there are different ways to invest in crypto other than holding currency. The appeal with this is that you can spread your risk and limit the impact of currency volatility.
When looking at your Bitcoin investment strategy, it’s important to consider the how as well as the why. Here are some ways you can invest in crypto without holding any coins.
Companies with Exposure to Crypto
It’s possible to increase your exposure to crypto without having to ask yourself, “Is Bitcoin a good investment?” You can do this by investing in publicly traded companies with relatively high exposure to crypto.
The most obvious example here is Tesla. Tesla holds around 8% of its reserves in Bitcoin, which means to some extent, the value of the business is tied to crypto. Therefore, when you invest in Tesla, you’re invested in Bitcoin.
The difference is, you’re a lot further away from the boom and bust of the day-to-day crypto value. Many aspects will affect the value of your Tesla shares, and crypto is just a small part of it.
You’re also placing judgment about the future value of Bitcoin in the company’s hands — they decide if they sell or buy.
This is a long way from buying and holding cryptocurrency, but it is a viable Bitcoin investment strategy.
Infrastructure that Supports Crypto
Crypto is about far more than just currency — there’s a whole industry behind it that’s big business. A big part of this is the infrastructure that supports crypto.
The backbone of cryptocurrency is mining. This is the way transactions are verified and new Bitcoin introduced into the market. To do this, miners compete to solve a complex puzzle, verifying the transactions and earning Bitcoin as a reward.
We like to think of this as the engine that fuels the Bitcoin ecosystem and as you might expect, it’s fairly complicated. This is where crypto’s infamous environmental impact comes in.
Mining is all about computing power — the more of it you have, the more likely you are to solve the equation and earn your reward. The difficulty is, the computers needed to solve the equations are energy-hungry.
This brings infrastructure into focus. Crypto has to become more efficient, and it’s the infrastructure that’s going to help solve the problem.
An investment in a publicly traded company that supports crypto infrastructure could be a way of backing the future of crypto today. If you look at crypto’s very public energy problem, it could be a good time to invest in crypto — if you’re invested in companies that are solving its biggest problems.
Technology that Supports Crypto
The key technology that supports crypto is blockchain. This is the system that helps Bitcoin record transactions and it’s essential to how the currency operates.
Blockchain isn’t just useful for cryptocurrencies though, it has meaningful uses in a wide range of industries. This makes it an attractive Bitcoin investment strategy for people who might have reservations about cryptocurrencies themselves.
Unlike crypto ETFs, which are very new, blockchain ETFs are more mature and offer a variety of different options. For example, the Amplify Transformational Data Sharing ETF has been around since early 2018 and has shown a YTD daily total return of 72.32%.
This just goes to show that investing in crypto can be about more than holding cryptocurrency. Is it a good time to invest in crypto? To answer this question, you’ve also got to look at the technology behind it.
Conclusion: Is Now the Time to Invest in Cryptocurrencies?
You just need to Google crypto to see that people have wildly different answers to this question. We can’t tell you whether it’s a good time to invest in crypto, but we can offer tips to improve your Bitcoin investment strategy.
It’s key that you analyze the issues that are most likely to impact your crypto investments and also recognize that there are many different ways to invest. You may not wish to hold cryptocurrency itself, but you may find that other opportunities offer better options for you.
Whatever you do decide to invest in, it’s important to remember that these are speculative investments. Only invest what you can afford to lose, and limit your risk — no more than 5% of your total portfolio is recommended.
Is it a good time to invest in crypto? There are lots of different ways to find out.