All the traditional old stories attributed to financial advisors advocate for saving enough and controlling expenses being the only way to amassing wealth for a relaxed impending retired life in 20 to 30 years. The art of compounding keeps adding valuation to your investments at consistently good rates for the funds to grow on the expected graph.
Traditional instruments being Bonds, Mutual Funds, Bank Deposits, Shares will never eat into your entire capital as turbualence here and there may reduce the average returns only. The assets lying in your portfolio are safe, secure and easily accessible for encashmnt or swapping at any point of time.
We have seen over the past few decades that all the global indices grow at around 11 to 12% per annum. Leave aside the bubbles of markets crashes happening at irregular intervals causing anxieties in the minds of investors, the compounding factor brings a good wealth for you even if you stay invested passively. These are the strong plus points for those believing in safe and assured returns from their investments. Alas! this route of accumulation of wealth takes longer journey to your retirement at the age of 60 years.
However, for the possibility of your retirement occurring anywhere between 40 to 50 years of age, you will have to think differently!! The idea of putting your money in the most volatile and riskier options could be scary for the obvious reasons but we have been listening from the experts “More the risk- More the profit”. Your money will grow in proportion to your risk only.
The year end rally saw the cryptocurrency prices soaring sky high prompting me to contemplate allocating some money in this newly found love of cryptocurrency in general and Bitcoin/Etherium in particular. Though not a guaranteed return option yet an investment that can get you closer to your relaxed retirement sooner than planned. The risk to reward ratio is incredible as you will see in the following illustration.
Cryptocurrency has come a long way since the year 2010. From virtually nonexistant pricing, Bitcoin has touched $42000 recently. Bitcoin came into existence through its founder Santoshi Nakamoto in 2009 as the first blockchain-based cryptocurrency in the world. It was considered as an attempt to create an alternate arrangement for money transactions directly without using the usual authorized medium of Banks or financial institutions. Feeling threatened by the presence of cryptocurrency seemingly an alternate to the Fiat currency, all countries have remained in unacceptable mode to regulate this cryptocurrency so far.
The price of Bitcoin remained inconsequential for the initial few years but July 2010 saw this unregulated little-known currency moving up from $ 0.0008 to $0.08. A big jump by all means!! Did anybody ever contemplate investing in Bitcoin even in 2010? I think no one would have ever visualized that this scarce commodity will create a magic in few year’s time and investors will carry this currency to astronomical heights.
Despite some of the exchanges closing down due to intervention of the regulatory bodies in various countries, a sudden spurt in price transpired in 2013 when a bitcoin trading @$13 reached a maximum $220 by the end of the year. Bitcoin after attaining a mind-boggling price of $19780 in December 2017 cruised along with prices going down to the $3500 levels right through 2018 but bouncing back to five figures in 2019.
Starting from the third quarter of 2020, cryptocurrency market has shown a tremendous spurt in prices, and the level of $28000 for a bitcoin achieved in December looked invincible. But look at the way this currency has behaved right from the start of the current year. We have witnessed milestones after milestones getting crushed in every session as the price skyrocketed to $42000 a bitcoin levels in the first week of January 2021.
While there is a Maximum limit of Bitcoin i.e 21 million to be mined and 18.62 million have already been in circulation as of date. This limited supply has created the gap between demand and supply impelling the institutional investors to join the party in a big way. The news of more than 78% accessible bitcoins having been possessed by the institutional investors left retail investors vying for the remaining 22% available in the market. As anticipated, this continued demand-supply gap may swell the prices beyond the purview of small investors in the future.
Over the last ten years, this currency has grown from a meager $ 0.08 to $42000, growing to (42000 is a 52499900% increase of 0.08.) Unbelievable. An investment of 100 (roughly 1200 bitcoins) in 2010 would have become $50400000 as of the first week of January 2021. look at the table “A” below for more comprehension. Etherium, the number two altcoin in the market has also been showing tremendous growth in the company with its more illustrious elder brother Bitcoin. Etherium is the platform being used by a large number of small tokens in the market and is likely to remain in demand.
| Name of Currency | Price 2010 | Price 2015 | Price 2020 | Price 2021 | Investment in 2010/15 | Number of Bitcoin & value |
| Bitcoin | $0.08 | $360 | $28000 | $42000 | $100 | 1200=$50400000 |
| Etherium | NA | $0.43 | $753 | $1393 | $100 | 233=$324569 |
Friends don’t you feel tempted to invest in this lucrative option despite being a risky proposition. To start with, let me put the various sentiments, both negative and positive about the future prospects of cryptocurrency in the words of leading businessmen/institutions to disseminate a fair idea before taking a dip in the crypto markets:
In the words of Warren Buffet, “I don’t have any Bitcoin. I don’t own any cryptocurrency, I never will,” he told CNBC in 2020. He has always been talking against this currency as these investments don’t follow the strictest terms of his legacy.
Another negative news on the volatility witnessed over the last few days as the UK regulatory has been quoted as saying :
“Individuals investing in crypto-currencies such as Bitcoin should be prepared to lose all their money, a United Kingdom regulatory agency warned. The Financial Conduct Authority (FCA) issued the warning after a sharp run-up in price in the last few months and a sharp decline over the weekend..https://moneywise.com/a/why-warren-buffett-hates-bitcoin
Slowly but surely most countries are opening up to cryptocurrency. We have regulated crypto exchanges like Coinbase, Bitflyer, Binance, Kraken, Huobi Global, etc to conduct business and a country like India has also started doing unprecedented business as all Banks allow transactions linked with cryptocurrency nowadays. I am not talking about the trading part which requires relevant skills and professionalism before jumping into this most volatile and risky business. However, this is an opportunity for those having a big risk appetite to venture into this portfolio for investing for a longer horizon.
The big brains of highly accredited professionals working with the leading Banks and Financial Institutions have been talking of a great future for this cryptocurrency.
US investment bank JP Morgan has created a crypto-currency to help settle payments between clients in its wholesale payments business. JPM Coin is the first digital currency to be backed by a major US bank. The crypto-currency, which runs on blockchain technology, has been used successfully to move money between the bank and a client account.
http://www.bbc.com/news/business-47240760
To conclude, I would love to present a very encouraging statement from the CEO of Pay-pal:
“I really like Bitcoin. I own Bitcoins. It’s a store of value, a distributed ledger. It’s also a good investment vehicle if you have an appetite for risk. But it won’t be a currency until volatility slows down.” —David Marcus, CEO of Paypal
Friends, looking at the briefly explained pros and cons of investing in this very tricky, speculative, and turbulent crypto market, you can take an informed decision before taking a call to venture into this unpredictable market. Short term players with fragile financial backup and a tendency to exit or enter the market frequently are prone to greater risk and must avoid spending restless nights after investments. However, as illustrated above, customers with high risk appetite may spare a few thousand to initiate into this market to reap rich dividends in the longer run.
What do you think of holding crypto currency in your portfolio as an alternate opportunity for a long term investment?
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