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- June 15, 2021, 18:17
More and more investors are considering cryptocurrencies as an investment option. There are odds that crypto assets will become the standard means of payment soon. We are discovering crypto perspectives and the reasons for their profitability.
Where Profitability Comes From
Why are crypto assets profitable? Let’s figure it out.
High Volatility
High volatility is a positive factor for cryptocurrency traders as it allows for earning more during a shorter period. Of course, significant market fluctuations hide risks for traders. However, experienced ones can have successful trades.
Returns
The rally of crypto assets may seem to be risky for traders and investors as it’s a sign of high volatility. However, a drastic surge is also an opportunity for significant returns. Let’s compare the returns of standard financial products with cryptocurrencies.
As of December 31, 2020, in 5 years, the S&P 500 index had a 14.5% annualized growth rate (in US dollars, net dividends reinvested). In the same period, Bitcoin’s annualized growth rate was 131.5%. Between September 2014 and April 2021, the USD average annual return was around 2-3%.
As for a one-day rise, on November 30, 2020, Bitcoin set an all-time high of $19,857, which resulted in a 177% year-to-date surge compared to the S&P 500’s increase of 14%.
Low Supply, High Demand
Every investor should know one simple rule: when supply decreases, the price goes up; when demand rises, the price goes up. In the case of the cryptocurrency market, both parts of the rule make sense.
The mining capacity of Bitcoin is limited – only 21 million BTCs can be mined. A supply cap is a feature of many cryptos. At the same time, demand for cryptos keeps rising. Both factors are anticipated to push the price up further.
Will the Crypto Market Be on a Par with Standard Financial Markets?
Although it may sound impossible, cryptocurrencies could become a standard financial security alongside fiat money, stocks, bonds, etc.
Increasing Acceptance
Despite continuing difficulties with regulations, the acceptance of cryptos is spreading all over the world. As of 2020, one-third of US small businesses have been accepting crypto assets as an official means of payment. The number of such companies in various industries keeps rising.
A rising level of acceptance can solve one of the hot-button issues of limited cash payments. A limit on cash payments is imposed in many countries to optimize payment turnover. For instance, in a study set to conclude in November 2022, Sweden is going to examine the feasibility of a fully electronic payment system.
A full transition to electronic payments would contribute to cryptocurrency usage.
Economic Factors
The economic crisis and other financial events, including Covid-19, could be a reason for the world central banks’ monetary policy that is resulting in a dramatic rise in balance sheets. There are talks that this problem could cause a massive depreciation in national currencies.
Meanwhile, crypto assets are not subject to such risks as their supply is limited, and they don’t experience the same political and economic pressures as central banks. Thus, cryptocurrencies can protect from increasing inflation.
Becoming More Transparent
The predictability of a cryptocurrency price is a challenge that pushes away both investors and authorities. However, it seems the situation is improving. The development of derivatives, futures, and options trading has greatly improved the ability to predict the Bitcoin price.
Closing Remarks
According to the mentioned factors, cryptocurrencies have both high profitability and positive perspectives. Thus, it’s worth thinking about where to store cryptocurrencies. A digital wallet is one of the options. Grapherex cryptocurrency wallet protects user funds with E2E encryption and state-of-art information security technologies.
