With the rise of cryptocurrencies taking the front stage, the financial environment has significantly changed in recent years. Many investors, from small-time hobbyists to established institutional powerhouses, have expressed interest in these digital assets. With nearly 40% of the $2.2 trillion cryptocurrency market, Bitcoin has become the industry leader. This blog examines the elements that helped VDAs soar as an asset class.
The Rise of Cryptocurrencies
In recent years, cryptocurrencies have become a famous and highly volatile asset class that has drawn much attention from investors who want to make the most money. Even though what happened in the past isn’t a promise of what will happen, it’s worth looking at how cryptocurrencies have done over the past five years to learn more about how they could be used as an investment.
The first cryptocurrency, Bitcoin, was developed in 2009 as a decentralized digital token with a fixed quantity of 21 million units. Investors and tech enthusiasts alike were interested in the novel idea of a limited-supply digital commodity. The number of virtual digital assets has grown dramatically, and hundreds of digital assets are currently on the market. Bitcoin (BTC) has been one of the cryptocurrencies that have done the best on the market. Over the past five years, the value of Bitcoin has grown a lot.
Due to its rising popularity, many investors have begun showing an interest in this asset class. Institutional investors have started devoting capital to investments in the cryptocurrency sector, including family offices, enterprises, insurance firms, asset managers, and significant university endowments.
Ethereum (ETH) is another coin that has grown very quickly. Ethereum has gotten a lot of press for being the second-largest cryptocurrency by market capitalization and for being able to run smart contracts and decentralized applications (dApps).
Binance Coin (BNB), the exchange’s coin, has grown significantly over the past few years. In the middle of 2017, BNB was worth less than $1. In May 2021, it was worth more than $600, which was its all-time high. It has done very well because of how famous the Binance exchange is and how useful BNB is within the ecosystem. The controversy surrounding the exchange has definitely hit the price, but BNB has a long way to go regarding utility and potential.
Even though these cryptocurrencies have given back a lot over the past five years, it’s important to be aware of the risks of dealing with them. The Bitcoin market is very unstable, and prices can change a lot in a short amount of time. Changes in regulations, security breaches, and new technologies can all have big effects on the value of cryptocurrency.
Comparing Crypto to Traditional Assets
Let us compare crypto and traditional assets like stocks, metals like gold or silver, and bonds.
Crypto Vs. Precious Metals
Before the advent of cryptos, scarce assets like gold and silver were considered the go-to options for investors seeking a store of value. However, cryptos have disrupted this traditional narrative, offering a new and potentially superior alternative.
Crypto Vs. Stocks and Bonds
Cryptos have also shown a tendency to outperform traditional assets like stocks and bonds regarding returns. Over the past 5 years, the growth of cryptocurrencies, particularly bitcoin, has outpaced the returns generated by most stock and bond investments.
Cryptocurrency Performance in the Past 5 Years
Bitcoin’s value has increased unprecedentedly during the last five years. Bitcoin’s price has increased dramatically for its investors from $450 in 2016 to over $60,000 at its peak in 2021, providing astonishing returns. Altcoins to Bitcoin have grown tremendously over the past five years. The value of Ethereum, Binance Coin, and Cardano has grown exponentially, further establishing crypto as a high-performing asset class.
Factors Contributing to Cryptocurrency Growth
What is steadily contributing to the growth of crypto growth? Let’s find out!
The underlying blockchain technology that powers cryptocurrencies has evolved significantly in recent years. Innovations like smart contracts, decentralized finance (DeFi), and non-fungible tokens (NFTs) have expanded the use cases of cryptocurrencies, attracting more interest from investors.
The past 5 years have seen a surge in the adoption of cryptos by businesses and individuals alike. More and more merchants are accepting cryptocurrencies as a form of payment, and individuals are using them for remittances, investments, and other financial transactions.
Investing in cryptocurrencies can potentially provide high returns, but balancing the risks associated with this asset class is essential. Diversifying your investment portfolio by allocating some crypto assets can help mitigate risk.
While Bitcoin remains the most popular and widely recognized cryptocurrency, investors can explore other promising coins to diversify their holdings further. Researching and analyzing various cryptocurrencies can help identify potential investment opportunities.
The Role of Cryptocurrencies in Modern Finance
We have established that the crypto market has a substantial contribution and will give us substantial returns. We shall now understand its role in modern finance.
Continued Growth and Adoption
The growth trend of crypto in the past 5 years is expected to continue, with increasing adoption and technological advancements driving further appreciation in value.
Evolving Regulatory Landscape
As VDAs become more mainstream, regulatory frameworks will likely evolve to accommodate this new asset class, providing more stability and credibility to the market.
Disrupting Traditional Finance
VDAs can disrupt traditional financial systems, offering faster, cheaper, and more secure alternatives for financial transactions.
Democratizing Access to Finance
Cryptocurrencies can provide financial services to individuals and businesses in underserved regions, democratizing access to financial resources and fostering economic growth.
Cryptocurrencies have been the best-performing asset class over the past 5 years, giving buyers returns that have never been seen before. Technological changes can explain their rise, more people using them, and more institutions getting involved. Even though there are still risks and problems, cryptos are likely to play a big role in the future of finance, disrupting standard systems and making it easier for more people to access money.