Cryptocurrencies are rapidly becoming a lucrative and high-income alternative for anyone who wants to earn more than traditional investment options like stocks and mutual funds. But, why are cryptocurrencies better than traditional investments in terms of returns or how can they produce very high returns consistently? Let’s try to figure it out here.
Cryptocurrencies are digital currencies based on blockchain technology. Unlike fiat currencies, crypto is not regulated or governed by any centralized entities like banks and provide a way to perform digital transactions without middlemen. In short, you can send cryptocurrencies to anyone anywhere in the world at a relatively faster speed and at a lower cost.
No one really knows when cryptocurrencies were actually founded, but the concept of digital currencies started becoming popular with the launch of bitcoin in 2010 - the crypto-coin that changed the way digital transactions are performed. Over the past decade, both the popularity and values of cryptocurrencies have risen drastically. Bitcoin, for example, is now trading at an all-time high price of $65,289 per BTC against its launch price of less than $0.01. Many other cryptocurrencies - collectively called altcoins - have also grown significantly over the period.
However, that is not to say that traditional markets are performing badly. Stocks, for instance, are consistently giving an annual return of more than 10-20%. Similarly, mutual funds are also producing a yearly return in the range of 10-15%, which is not so bad for a traditional asset. But again, these returns do not even come to what cryptocurrencies have been offering. Let’s compare the crypto stats for the past year.
Cryptocurrencies Vs Stocks in 2021
Bitcoin is the largest cryptocurrency by market cap. Since the beginning of the year, the price of bitcoin has increased from ~$32,000 in Jan 2021 to ~$65,000 in Nov 2021. That’s a growth of more than 100% in less than a year.
And not just bitcoin and other popular cryptocurrencies, but many smaller or newer coins are doing fairly well in the market. Libra Coin, which is an e-commerce-focused digital payments coin, has nearly doubled in value since its launch in 2020. This is what happens with good cryptocurrencies that have plenty of real use cases.
The stock market, on the other hand, has produced an average YTD return of ~20% across different segments. The YTD return of the S&P 500 by October was ~22%, while that of the Dow Jones was ~17%. Even in growing markets like India, the YTD return across different segments remained in the range of ~20-30%.
In a nutshell, the average annual returns of cryptocurrencies are much higher than the average annual returns of traditional markets.
So, yes, it pays high to invest in cryptocurrencies.
But, why exactly are cryptocurrencies giving such high returns?
Well, there are many reasons behind the stellar growth of cryptocurrencies over the past couple of years. First, digital currencies are high in demand and everyone seems to be wanting to buy them, which has boosted the value of cryptocurrencies that have limited supplies. Bitcoin (BTC) is one such cryptocurrency with a limited supply.
Cryptocurrencies are highly volatile in nature, which means their prices may increase or fall significantly and abruptly. This is because these digital currencies are not governed by any traditional regulations and their values completely depend on the market (demand and supply). So, when a lot of people buy a crypto coin, its price starts increasing and so on.
Another thing to know about cryptocurrencies is that they are high-risk assets, i.e. the risk of losing your investment in crypto is much higher compared to traditional, regulated markets.
Original Source: https://vocal.media/01/why-or-how-crypto-investments-give-the-highest-returns