There are a lot of people who are asking why they should use cryptocurrency instead of cash. The answer is quite simple. It can be used to make transactions at lower fees and in a more cost-efficient way. In addition to that, it is also a means of diversification from the conventional financial assets. This means that you can access your funds without going through a centralized authority.
Diversification from traditional financial assets
Cryptocurrencies like Bitcoin have been hailed as a new financial asset that can diversify a portfolio. In theory, a crypto portfolio can help reduce overall volatility, generate more stable returns, and even increase liquidity. However, there’s more to investing than putting money in digital currencies.
Diversification is the key to investing success. Whether you’re putting money to work in the stock market or your retirement fund, you’ll be able to achieve your investment goals more easily if you’re well-diversified.
As a result of this, cryptocurrencies are becoming an increasingly important part of the global digital asset revolution. While there are still many questions regarding their value and speculative nature, they have become popular among both investors and financial institutions.
One of the best ways to add diversification to your portfolio is by using a diversified index. The CFA Institute has created a framework to assess the diversification potential of an asset class. Among other things, the institute looks at transaction costs, liquidity, and homogeneousness of an asset class.
Resistance to inflation
If you’re trying to protect your investments from inflation, it’s worth considering a crypto hedge. Cryptocurrency has the potential to provide a solid alternative to fiat currencies. While there is a certain amount of risk, this is also a great way to diversify your portfolio.
For many, the idea of a deflationary currency sounds appealing. This is because it allows you to preserve value in the face of a declining dollar. As a result, deflationary currencies tend to be excellent inflation hedges.
However, the question is, is crypto a good inflation hedge? Those who support it claim that it is uncorrelated with other assets, and can resist inflation.
Cryptocurrencies, like gold, also have the advantage of a limited supply. In addition, they aren’t affected by interest rates or other government policy changes.
The value of a coin is also governed by its network. Unlike fiat currencies, the economics of a coin are encoded on the blockchain. Using the blockchain gives the underlying economics of a coin a strong element of stability.
Lower fees and more cost-efficient transactions
Cryptocurrency is not for the faint of heart. It is, after all, a decentralized peer to peer network. If you are the type of person who needs a traditional bank account, you may want to keep your cash close to you. The crypto equivalent of a bank account may sound like a pipe dream to some. Luckily, there are options. In fact, the Bank for International Settlements (BIS) tracks these types of transactions.
A cryptocurrency wallet is fairly easy to set up. There are no bank fees involved, although you may have to shell out for a wire transfer. These fees can be anywhere from $25 to $30.
One of the most exciting aspects of digital currency is the ability to interact with others using secure channels. This is particularly true of ethereum and bitcoin, which allow you to send payments to people all over the world.
Aside from its utility, it is also one of the cheapest ways to transfer money. While the transaction fee can vary widely, you can save quite a bit of cash when you compare it to the cost of a traditional wire transfer.
A way for the unbanked to access financial services without having to go through a centralized authority
In some countries, people have access to banking services via mobile phones. This technology allows financial institutions to engage with unbanked consumers.
The number of unbanked households has decreased in recent years. However, significant gaps in access to basic financial services still remain. These gaps are more apparent among women, the poor, and minorities.
For those who haven’t been able to open a bank account, there are alternative financial services (AFS). AFS can include payday loans, check cashing, pawn shop loans, and other types of loan. They are typically more expensive than traditional banks, though.
As banks look to expand their service offerings, they should consider the impact of the unbanked population. Unbanked consumers have limited opportunities to build credit, accumulate wealth, or use digital payment systems. Increasing their access to banking services can reduce poverty by providing a safe place to keep money.
Financial inclusion is also beneficial to the economy as a whole. The FDIC reports that 5.4 percent of American households were unbanked in 2019. Although these figures are decreasing, they are still very high.