There is something about cryptocurrencies that many people have yet to wrap their head around; the concept of decentralization. Many people still perceive cryptocurrencies and crypto commodities with a lot of suspicions, some even calling the whole industry a scam. There is also this notion that these digital currencies are mostly used by drug dealers and other illegal traders online to avoid the conventional monetary system that is barred with a lot of regulations. All of these notions are true, but it is also true that digital currencies, along with the whole idea of blockchain technology is revolutionizing concept that is gradually changing the manner of doing business and investing. Here is what you need to know about these currencies, investing and volatility.
What are Cryptocurrencies?
By now you have an idea of what crypto or digital currencies are. But just to shed some light on them, digital currencies are cryptographic functions that serve as a means of exchange for online transactions. You can pay for any physical commodity using these digital functions. The most famous digital currency is the bitcoin. These currencies rely on blockchain technology to ensure transparency, immutability, and decentralization. Cryptocurrencies are not controlled by any central authority and require very minimal processing fees. They can easily be sent from one individual to another or between organizations.
The technology has gone a notch further to include digital commodities. These are digitized assets that have a corresponding physical value. A lot of big corporations are now digitizing their assets for ease of management. Digitizing assets has opened up the investment market to a new crop of investors that had great potential, but had been limited with the stringent requirements put on the conventional markets. Crypto commodities are tradable, representing utilities or contracts in the real world. Most of these commodities are created on the Ethereum blockchain technology, which provides multiple functionalities.
As a trader, it is now easy to buy tokens representing a particular utility or asset. The bureaucracies and requirements that were characteristic of the stock market are absent in the crypto market. There are no issues to do with KYC/AML requirements nor do you have to sign a lot of documents for you to invest. It is a fairly straightforward process that requires very minimal information. In most investment platforms, you will only need your email, address and name to get your tokens. The liberal nature of this market has enabled investors from all walks of life with or without technical knowledge to get a share of numerous investment opportunities.
Digitalizing assets means that you have complete control of your assets. You can liquidate your assets anytime you want without having to go through a bank or an investment agency. When you buy tokens, you are given a private key in digital form. You are the only person who has control of this key, not unless you decide to transfer it to another person. It is this digital key that you release to another person when you need to convert it to physical or traditional currency. With a digital key, your assets remain protected from most financial crises and bank closures. You can also trade these assets on any platform and switch from one asset to another. It is easier to create a diversified portfolio with such tokens than with the traditional stocks and shares.
Low Investment Deposits
A low investment deposit is another advantage with crypto commodities. Conventional commodities from banks and other investment agencies have been out of reach from many potential investors due to the high initial deposits. There are minimal funds that investors should have to get these commodities and other requirements related to the time that one should forfeit their funds to earn a profit or interest. It is a whole different case with crypto commodities, where investors can buy tokens with as little amount as possible. You can even buy a fraction of a token and still make a profit out of it.
All markets are volatile to some extent, but the crypto market volatility can be extreme. For instance, bitcoin rose from $700 to $20,000 in about 12 months, then dropped to below the initial price in the following year. The rise was a staggering 27,000% increase in price. Other digital currencies rise and fall based on bitcoin’s performance.
With crypto commodities tied to digital currencies, you’d expect the commodities to be also as volatile. However, this is usually not the case as the commodities have real-world assets backing their value. You should know though, that despite this backing, cryptocurrencies fluctuations affect the traditional stock market and by extension the value of the physical assets.