Welcome back from the three-day Memorial Day weekend. As the holiday-shortened trading week gets started, let’s step back and take a big picture view of an investing megatrend: the ascendancy and mainstreaming of cryptocurrency.

The title of this article is borrowed from Everything You Always Wanted to Know About Sex* (*But Were Afraid to Ask), by Dr. David Reuben, an iconic #1 bestseller first published in 1969 and later made into a 1972 comedy by Woody Allen.

I chose the title because it’s so appropriate for the seemingly inscrutable world of cryptocurrency.

Reuben’s book aimed to demystify sex, an often taboo and confusing topic (especially 55 years ago). Likewise, this article seeks to unravel the complexities that can intimidate average investors about cryptocurrency.

Both subjects are shrouded in a mixture of fascination and misunderstanding. Many people are curious about crypto, eager to understand how it works, its benefits, and potential risks, but they are deterred by its technical jargon and fear of the unknown.

In this primer, I’ll unravel the mysteries surrounding cryptocurrency investing, exploring its definition, investment opportunities, historical performance, and its potential to revolutionize finance. I’ll also steer you toward the best source of practical advice on crypto investing.

What Is Cryptocurrency?

At its core, cryptocurrency is a digital or virtual form of currency secured by cryptography, making it nearly impossible to counterfeit or double-spend. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies operate on decentralized networks based on blockchain technology.

This decentralization eliminates the need for intermediaries such as banks, providing users with greater autonomy and privacy over their financial transactions.

Investing in Cryptocurrency

For the ordinary individual investor, entering the realm of cryptocurrency may seem daunting, but it’s more accessible than ever before. Here are some ways to get started:

• Cryptocurrency Exchanges: These online platforms allow users to buy, sell, and trade various cryptocurrencies. Popular exchanges include Coinbase, Binance, and Kraken. To begin, sign up for an account, undergo identity verification, and fund your account with fiat currency.
• Cryptocurrency Wallets: After purchasing cryptocurrencies on an exchange, it’s crucial to store them securely in a cryptocurrency wallet. Wallets come in various forms, including hardware wallets, software wallets, and mobile wallets, each offering different levels of security and convenience.
• Dollar-Cost Averaging (DCA): Instead of making a lump-sum investment, consider employing a DCA strategy by investing a fixed amount of money at regular intervals. This approach helps mitigate the risk of market volatility and allows investors to benefit from potential price fluctuations over time.
• Crypto–Linked Exchange-Traded Funds: Regulators recently approved ETFs linked to cryptocurrency assets, making crypto investing safer and easier for the masses.

Why Cryptocurrency Is an Appealing Investment

While traditional investment assets such as stocks and bonds remain cornerstone components of investment portfolios, cryptocurrency offers several unique benefits:

• Diversification: Cryptocurrency operates independently of traditional financial markets, providing diversification that can help mitigate overall portfolio risk.
• Potential for High Returns: Historically, cryptocurrencies have exhibited significant price appreciation, offering the potential for high returns for investors.
• Hedge Against Inflation: With central banks around the world engaging in unprecedented monetary stimulus measures, cryptocurrencies are increasingly seen as a hedge against inflation due to their finite supply and deflationary nature.

Basic Types of Cryptocurrency Investing

1. Bitcoin (BTC): Often referred to as the “blue-chip” cryptocurrency, Bitcoin is the first and most well-known cryptocurrency, serving as a store of value and digital gold.
2. Ethereum (ETH): Beyond being a cryptocurrency, Ethereum is a decentralized platform that enables the creation of smart contracts and decentralized applications (DApps), making it a significant player in the cryptocurrency ecosystem.
3. Altcoins: Short for “alternative coins,” altcoins encompass any cryptocurrency other than Bitcoin. These include a diverse range of projects, each with its unique features and use cases, such as Ripple (XRP), Litecoin (LTC), and Cardano (ADA).

According to research firm Statista, revenue in the cryptocurrencies market is projected to reach US$51.5 billion this year:
Bitcoin’s market size and influence has grown ever greater, in the wake of the decisions earlier this year of the U.S. Securities and Exchange Commission (SEC) to approve ETFs linked to Bitcoin and Ethereum. The SEC’s moves further integrated crypto into the investing mainstream.

Since the inception of Bitcoin in 2009, cryptocurrencies have experienced remarkable growth and volatility. While early adopters have reaped substantial gains, the market has also witnessed periods of sharp corrections and bear markets. Despite these fluctuations, the long-term trend has been characterized by upward price trajectories, reflecting growing adoption and mainstream acceptance of cryptocurrencies.

Cryptocurrency as an Inflation Hedge

One of the most compelling arguments for including cryptocurrency in an investment portfolio is its potential to serve as an inflation hedge.

In recent years, cryptocurrencies have garnered significant attention not just for their potential to revolutionize the financial system, but also as a viable hedge against inflation. The intrinsic characteristics of cryptocurrencies, particularly Bitcoin, make them an attractive option for investors seeking to preserve their wealth in times of economic uncertainty and rising inflation.

Inflation erodes the purchasing power of money over time. Traditional fiat currencies, such as the U.S. dollar, are particularly susceptible to inflation due to central banks’ ability to print more money. This increased money supply can lead to higher prices, diminishing the value of savings. Historically, investors have turned to assets such as gold to hedge against inflation, but cryptocurrencies, particularly Bitcoin, offer a modern alternative.

One of the primary reasons cryptocurrencies are considered a hedge against inflation is their scarcity. Bitcoin has a capped supply of 21 million coins. This finite supply contrasts sharply with fiat currencies, which can be printed in unlimited amounts. The scarcity of Bitcoin ensures that it cannot be devalued by an increasing supply, making it an attractive store of value.

Moreover, cryptocurrencies operate on decentralized networks, reducing the risk of government interference and manipulation. This decentralization ensures that no single entity controls the supply or value of the currency, providing a level of security and predictability that fiat currencies lack. As central banks around the world implement expansionary monetary policies, the decentralized nature of cryptocurrencies becomes increasingly appealing.

The growing acceptance and adoption of cryptocurrencies further bolster their status as an inflation hedge. Major financial institutions, including investment banks and hedge funds, are incorporating cryptocurrencies into their portfolios.

Additionally, companies such as Tesla (NSDQ: TSLA) and Block (NYSE: SQ) have made significant investments in Bitcoin, signaling confidence in its long-term value. This institutional adoption not only validates the credibility of cryptocurrencies but also enhances their liquidity and stability, making them a more reliable hedge against inflation.

Empirical evidence supports the view that cryptocurrencies can act as a hedge against inflation. During periods of high inflation, such as in 2021 when inflation rates surged globally, Bitcoin and other cryptocurrencies saw substantial increases in value. This inverse relationship between cryptocurrency prices and inflation rates suggests that investors view digital assets as a safe haven during economic turbulence.

Accessibility and Transparency

Another advantage of cryptocurrencies is their accessibility. Unlike traditional hedges such as real estate or gold, cryptocurrencies are easily accessible to the average investor. All that is needed is an Internet connection and a digital wallet. This accessibility democratizes the ability to hedge against inflation, allowing individuals from all economic backgrounds to protect their wealth.

Additionally, the transparency of blockchain technology, which underpins cryptocurrencies, ensures that transactions are secure and traceable. This transparency builds trust and reduces the risk of fraud, further enhancing the appeal of cryptocurrencies as a hedge.

The Cryptocurrency Revolution

Beyond its role as a speculative investment asset, cryptocurrency has the potential to revolutionize finance in several ways:

• Decentralization: By eliminating the need for intermediaries such as banks and financial institutions, cryptocurrencies promote financial inclusion and empower individuals to have greater control over their money.
• Blockchain Technology: The underlying blockchain technology that powers cryptocurrencies has applications far beyond finance, including supply chain management, voting systems, and identity verification.
• Disruptive Innovation: Cryptocurrencies have the potential to disrupt traditional financial systems and democratize access to financial services, particularly in underserved regions where traditional banking infrastructure is lacking.

While it comes with its risks and challenges, the potential rewards and transformative impact of cryptocurrencies can’t be overlooked. As with any investment, conducting thorough research, exercising caution, and diversifying your portfolio are essential principles to follow in navigating the digital frontier of cryptocurrency investing.

Get aboard the crypto bonanza…

As I’ve just explained, crypto is making ordinary investors rich…and it serves as an inflation hedge, to boot. But you need to make your move now, because the fuse is lit on this market. And every day you wait is literally costing you thousands in profits.

 

Our in-house crypto expert, Alex Benfield, makes crypto investing easy. He’ll walk you through everything, step by step.

Alex made a personal fortune on crypto. Now, his mission in life is to spread the word about crypto and make other people wealthy, too.

Get in on the crypto action…now. To learn more about Alex’s new trading service, Crypto Trend Investor, click here.

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John Persinos is the editorial director of Investing Daily.

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