The Emergence of Cryptocurrency
Lately, if you have been on any social media platform, you must have heard about crypto, bitcoin, and the upcoming ETF approval.
The Inception
It all started with Bitcoin. Bitcoin was created in 2009 by Satoshi Nakamoto, whose actual identity is unknown. The goal of launching this digital currency was to have peer-to-peer transactions without centralized authorities. Bitcoin was first launched for transactional purposes but now is mostly used as a store of value. The quantity of Bitcoins is fixed, meaning there will always only be 21 million Bitcoins available, and the number of tokens will never change.
Today, Bitcoin has a market cap of approximately $862 billion, and each token is worth approximately $43,000. With this said, only 2 million Bitcoin tokens are left to be mined, which means most of the supply has been accessed. With Bitcoin, many other tokens have gained popularity, like Dogecoin, XRP, and Ethereum. These tokens may have their blockchain networks or be built on existing ones.
What are Cryptocurrencies?
Cryptocurrency is a digital currency that works on a computer network, generally a blockchain network, and is protected by cryptography. Cryptocurrencies allow people to transact with any person irrespective of location and do not involve any centralized authority. The name and location of the person you are transacting with stay anonymous and only their wallet address is known. Trading or investing in crypto coins or tokens only requires a digital wallet and Wi-Fi.
The Rise of Cryptocurrencies as an Investment
While the US equity market is valued at approximately 46 trillion dollars, the whole crypto market has a market cap of 1.72 trillion dollars. This shows us that people are slowly adopting cryptocurrencies as a legitimate investment vehicle.
With companies like Blackrock, WisdomTree, Grayscale, and Fidelity submitting applications for Bitcoin ETFs to the SEC, cryptocurrency is becoming an opportunity that large investment firms may leverage to create new financial products and services. In 2024, with the increase in involvement with crypto by companies like PayPal, Robinhood, and investment firms, we will see more investment products related to crypto coming out, like crypto growth ETFS and spot ETFs for different tokens.
Crypto-related Investments in the Stock Market
One popular Bitcoin investment vehicle is GBTC or Grayscale Bitcoin Trust, which has grown nearly 280% since 2023. Investments in the crypto market itself, like Fidelity Crypto Industry and Digital Payments ETF (FDIG) and Schwab Crypto Thematic ETF (STCE), are becoming popular. Subsequently, more retail investors are dipping their hands in the crypto market.
Another popular crypto-related investment is in Bitcoin miners. These miners are companies that mine Bitcoin, utilizing large warehouses with hundreds of computers. Popular Bitcoin mining companies are Riot Platforms (RIOT), Bitfarms Ltd (BITF), Marathon Digital Holding Inc. (MARA), and CleanSpark Inc. (CLSK). For example, MARA has grown nearly 400% since 2023.
The Institutional Accumulation of Bitcoin
In the last couple of years, big companies have been accumulating Cryptocurrencies, particularly Bitcoin. For example, PayPal now holds nearly $1 billion in Crypto-related investments, Robinhood holds about $3 billion in Bitcoin, and Tesla owns nearly $200 million in Bitcoin. Here is a list of the top 10 companies with the largest Bitcoin holdings.
Conclusion
At the moment, the crypto market is dominated by Bitcoin and Ethereum, but new ecosystems with faster transaction speeds and lesser transaction fees may lead to other tokens gaining popularity. In the future, we may see pension and mutual fund managers adopting cryptocurrencies as investments for their clients.
While crypto is gaining speed as an investment vehicle, we should be careful and prudent about our investments. The Cryptocurrency market is very volatile, which provides a scope for huge gains and losses. Always remember that buying any cryptocurrency is a high-risk investment.
Additionally, Cryptocurrency exchanges and brokerages are not insured or backed by the US government. If you get scammed or your broker goes bankrupt, the tokens or money in your brokerage account are not insured by SIPC or FDIC.
“As the value goes up, heads start to swivel, and sceptics soften. Starting a new currency is easy. Anyone can do it. The trick is getting people to accept it because it is their use that gives the ‘money’ value.”
— Adam B. Levine
On to the next.
-Akash Gaonkar-
The financial advice provided is for informational purposes only and should not be considered as professional financial advice. Consult with a qualified financial advisor before making any financial decisions, as individual circumstances may vary. We do not guarantee the accuracy or reliability of the information provided, and we are not liable for any financial losses incurred.
