3 Ways to Diversify Your Cryptocurrency Gains
Congratulations, you have made a profit from bitcoin and other cryptocurrencies. Now what? Here are three investment options to consider to protect your recent gains.
Last year, the world saw a massive influx of capital into the cryptocurrency markets as they gained popularity in the mainstream media, and there’s no telling how 2018 will play out. The total cryptocurrency market cap, which includes the market cap of all the coins (there are currently over 1,300) surpassed US$700 billion just a few days into January 2018 (According to CoinMarketCap), and has taken a wild, uncertain tumble. The masses have entered the market, as well. The number of users on Coinbase, a Bitcoin trading exchange, surpassed the number of active brokerage accounts at Charles Schwab late last year (according to CNBC).
Bitcoin, the largest market cap in cryptocurrencies, surged from $3,000 in mid-2017 to over $20,000 per coin in December and sharply decreased shortly thereafter, and nobody truly knows why. Some of the sharp price movements were driven by regulatory moves in Japan, South Korea and China. The cryptocurrency space is new and exciting to many, yet highly volatile and risky. Despite the risks, there are few players who have come out with net positive gains, and some lucky enough to make a life-changing amount of money. There’s a new generation of rich cryptomillionaires who have taken money off the table to protect their gains, and are looking for an investment solution. If you are one of the lucky ones that made a profit and think the bull runs are over, you're probably asking yourself what to do with your newly minted cash.
If you were able to capitalize on the recent gains before the pullback, congratulations. You shouldn't stop there. Convert your gains to cash and don't let it sit on an exchange or in a low-yielding account. Allocate like an informed investor, and use your cash to potentially generate more wealth for yourself. An informed investor may evaluate their overall portfolio mix, asking themselves: how many different types of investments do I have? Am I invested in multiple geographies, asset classes, and do I have a mix of stocks and bonds? Where am I most concentrated in? What is my single greatest holding? Where can I diversify my assets? How much risk am I comfortable with? Next, they may decide what to do with their additional cash. Here are some options to consider:
Ever wanted to fund that startup accessory on Kickstarter? If there is a big-ticket item you've been eyeing and can now afford, now is the time to do it. Get that jet ski, new computer gaming set, new car, and donate to your favorite cause like baby pandas and clean energy. Pay off your bills and debt obligations first (credit card, student loans, etc.) and treat yourself. You've earned it.
Think about paying for your future, now. You can contribute to an IRA and let it potentially grow over a long period of time. It pays to invest sooner. Compound interest is, and can continue to be your friend, especially if you are a number of years away from retirement. For example, a 25-year old today who wants to accumulate $1 million by the time he or she is 60 would need to invest $880.21 a month (assuming a constant return of 5%). In contrast, a 45-year old today would have to invest almost four times as much at $3,741.27 a month to accumulate the same amount by 60.
Consider diversifying your holdings and purchase a mixture of stocks, bonds, and alternatives like real estate. Real estate is historically known as an inflation hedge. Also, real estate is generally illiquid, which may help you resist the urge to take it out for several years. You can start at low minimums by buying a portfolio of real estate via a Real Estate Investment Trust (REIT) and reinvest your dividends to potentially build your wealth.
Invest based on your risk tolerance and your individual goals. Evaluate your overall portfolio and consider how diversified you want to be. Figure out your long-term strategy and how much risk or volatility you can put up with, and invest intelligently. As an investor in cryptocurrency, you can probably deal with a lot of volatility. If you want to protect your capital, invest wisely. There's a difference between a single trade and a single investment. You may not fully plan your trades but you should always plan your investments.
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As always, investors should understand the risks associated with real estate investing and that nothing is guaranteed.