By Lihan Hyunwoo Lee, CTO and Co-Founder, Xangle
Investors are running to crypto. It seems that every week there's news about another high profile person or organization investing in Bitcoin or other cryptocurrencies — and they're not just investing a few dollars to see how it goes, they’re investing millions. Why the sudden influx of investments? It could be due to the increasing awareness of the benefits of cryptocurrency, but the recent spike in investments is most likely due to the COVID-19 pandemic.
The pandemic sent the U.S. economy plummeting in 2020, with an overall market contraction reminiscent of the Great Recession. While the markets are now recovering, investors have taken advantage of buying assets when they were low and holding for short- and long-term gains. That strategy, buy-low-sell-high, could be used for any asset, so what makes crypto different from stocks?
The difference lies in the type of asset. Cryptocurrencies are designed to be a store of value, like gold, that are resistant to depreciation or inflation, unlike fiat currencies. In economic downturns, governments print money to offset the imbalance, resulting in inflation, which can quickly get out of control like it has in Argentina and Venezuela. The price of cryptocurrencies, however, remains unaffected by the influx of cash that would depreciate government-issued fiat currencies.
No wonder investors are running to it. It's not only a store-of-value asset with immunity to inflation - the current volatility is producing high returns for those who are more risk-tolerant. Crypto has also shown that it's past the adoption phase and into the growth phase, and is therefore a worthy investment to get excited about.
Our new report entitled “Crypto Investing: Insights from Accredited Investors” gives a glimpse into the minds of accredited investors and their outlook on cryptocurrency, why they're investing, and how bullish they are on its future. This can help us understand the near future of the industry and what we need to fix to welcome in more investors, as we move crypto ever-closer to being an institutionalized asset.
They're Investing Big and They're Investing in Crypto
Accredited investors are individuals with high incomes who, according to the SEC, are given permission to invest in unregistered securities, like cryptocurrency. We can clearly discern from the report that they're investing a lot, with the majority investing over $1 million into highly-diversified portfolios that include the expected blue chip stocks, bonds, small cap, 401(k)s — and cryptocurrency.
In fact, the report reveals that 70% of those surveyed have already invested in Bitcoin, and are well-aware of what cryptocurrency is. This shows that crypto isn't a new investment opportunity, but rather that crypto has proved its worth and benefits, and that investors are already all-in.
Not only have they already invested in Bitcoin and other crypto, but they’re looking forward to investing more in the future. Three-quarters of those in the report say they wanted to invest in Bitcoin, and were willing to stake $500,000 or more in the next year. Additionally, they want future investments to not only include Bitcoin but DeFi products as well.
Their outlook on crypto assets doesn't stop at direct investments. They were also interested in building their own crypto mining farm, or even investing in a crypto startup, crypto-focused fund, or a public crypto-based company. Investors aren't just singularly focused, but are interested in casting a wide net in the industry.
Reasons Why They're Investing
We already touched on some reasons why investors want to put their money into cryptocurrency, including the aforementioned store of value, but the report details a bit more about why they're investing. The biggest reason is for long-term speculation. Those who bought Bitcoin only a few years ago have seen significant gains in their investment — to say the least. Investors are hoping for much of the same, with a buy-and-hold strategy. This also supports the store-of-value trust in crypto.
What's fascinating is that crypto turned into an incredibly attractive investment opportunity, considering it was designed to be a usable currency first. While we're starting to see more widespread adoption of crypto as a currency, and more infrastructure being put into place to support it, adoption is slow. Still, a handful of investors are choosing crypto because they want to push it forward, believing in it as a decentralized monetary option outside of government regulation and apart from uncertainty associated with fiat money.
Ways to Increase Investing
Investors are going to propel crypto forward, but there are still concerns that need to be addressed in order to bring in new investors. Crypto investing has had a rocky start, with $16 billion defrauded from investors in crypto scams since 2012. Investors today believe that scams are still a big barrier to entry.
A strategy to reduce scams includes increasing transparency in the industry, which could be done by having crypto projects disclose what their project is about, who their team is, and any proven use cases, so that investors are able to do their due diligence in determining the validity of the project or coin before they invest.
As of right now, crypto is an unregulated industry, where lost investments are not protected or retrievable, which has created another barrier to entry. The industry needs more investor protections in the form of regulatory measures in order to encourage more risk-averse investors to buy in.
Finally, investors want to see more awareness and education around what crypto is and what it can do. The report makes a note that despite incredible excitement and investment in the space, half of the investors we surveyed still believe Bitcoin is a Ponzi scheme. The industry needs to give investors the tools it needs to enable players to make well-informed decisions around their investments.
Looking to the Future
Accredited investors aren't just coming for crypto — they're already here, actively investing and looking to the future of crypto as the ecosystem expands. Increased awareness and economic uncertainty have jumped investments forward, but there’s still more the industry needs to do in order to make sure it doesn’t stagnate.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.