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Why Digital Assets Should Form Part of Your Investment Portfolio

Nyamweya is a Kenyan scholar who has done many years of research on a diversity of topics

Digital assets like cryptocurrencies and NFTs are the latest asset class and investment products gaining interest among both individual and institutional investors. Recent research shows that up to 80% of institutional investors in the US and Europe find something interesting about digital assets.

Across Africa, the appetite for digital assets is also growing among investors and governments. Several governments across the continent are tossing the idea of having Central Bank Digital Currencies (CBDCs) driven by the desire to have secure and reliable financial ecosystems.

For several years, Africa has been plagued by misfortunes and underdevelopment. Many bullish crypto entrepreneurs and nations are now banking on digital assets to revitalise the continent’s financial sectors and reverse many issues holding the continent back. Below is a detailed overview of why you should consider adding digital assets to your investment portfolio;

Africa is the New Fertile Ground for Digital Assets

As noted earlier, Africa’s development has for long lagged due to poor infrastructure and a dysfunctional financial system that has made financial services less accessible. It is this trend that is forcing policymakers, investors, and entrepreneurs to look for alternatives.

The ease of access, especially through smartphones, makes digital assets the right assets class for Africa as the content seeks financial inclusion, especially among the several unbanked Africans. Africa’s cryptocurrency market is also still in its infancy stage and presents several avenues for growth. The cryptocurrency market in Africa represents a small share of the global market and still playing catch up compared to other continents.

To streamline their financial systems, increase financial inclusion, and improve foreign remittances, many countries across Africa are at different stages of developing CBDCs. These initiatives have strong support from private investors who are already pouring large amounts into digital assets.

Examples of countries are that are working on CDBCs include Nigeria, which has already launched the digital Naira. Others are Kenya, Ghana, Tunisia, Morocco, and Madagascar. All these conditions make Africa the next frontier in digital assets investment.

Diversifying your Portfolio

In the world of investment, diversification means spreading out your total investment across multiple investment products. It is a strategy used by investors to minimise risks associated with natural price fluctuations and increase their investment earnings.

You can divide your investment into stocks, bonds, currencies, real estate, and cryptocurrencies. This way, it is extremely unlikely that these investment instruments can experience a dramatic drop at the same time.

Institutional investors are already adding digital assets to their portfolios in order to spread risks. Research conducted in the US and Europe revealed that up to 40% of institutional investors had digital assets in their portfolios.

Many investors are not new to traditional assets like equity, derivatives, and foreign exchange, which make up the largest chunk of their portfolios. The growing popularity and potential of cryptocurrencies have attracted interest from many traders who are now including them in their portfolios to diversify risk.

A hedge against inflation

In addition to offering short-term financial gains, conservative investors target digital assets as part of their long-term growth strategy. This is because digital assets are less prone to government manipulation, and they are very stable and less risky.

Compared to fiat currency that can be printed overnight, digital assets cannot be printed. This makes their supplier predictable and their prices more stable. Digital assets are, therefore, a safer avenue to hide your investment in the wake of runaway inflation.

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Many investors use cryptocurrencies to hedge against inflation because there is a finite amount of it. The scarce supply drives up demand and pushes up prices. This further boosts the bullish nature of digital assets, making them ideal for investment.

The Booming Digital Asset Sector

The digital assets market has been on a spiral rise since the first cryptocurrency was introduced in 2009. Bitcoin, the world’s largest cryptocurrency, has been shuttering price ceilings and setting new milestones in terms of price level and market size.

From a little over $7,000 in 2019, Bitcoin today is priced at around $45,000 and once reached highs of more than $60,000. Bitcoin rise mirrors the general bullish trend in cryptocurrency, which has seen other cryptocurrencies also project an upward trajectory.

There is also growing interest in Nonfungible tokens or NFTs as people seek to tokenise their unique items and talents. NFTs are usually encrypted with unique identification codes and metadata to distinguish them from one another. NFTs are growing in popularity mainly due to the growing use of blockchain to show proof of ownership.

Opportunities for Better Returns

Since the launch of the first digital currency – Bitcoin, in 2009, cryptocurrencies have seen exponential growth both in price levels and market size. For instance, at its launch, Bitcoin was priced at US$0.08. The price has since risen to highs of US$64,863 in 2021.

Bitcoin has also sustained a decade of continuous growth and outlasted most growth hype cycles whose growth bubbles usually burst after a few months or years. Bitcoin’s sustained growth momentum points to its stability compared to fiat, whose value keeps changing subject to inflation.

Africa’s Growing Digital Ecosystem

Africa has lagged behind other continents in terms of embracing digital technology. This trend is shifting as the continent is very receptive to new technologies,s including mobile transactions and a vibrant fintech sector.

The pandemic has accelerated the rate of digital adoption and a digital ecosystem is taking shape in Africa and around the world. The growing digital ecosystem is expected to drive the adoption and use of digital assets to even greater heights.

Digital technologies are projected to open new avenues for earning from digital assets, including trading, mining, saving, and preserving valuable items from price depreciation in the form of NFTs.

Passive Income

You can devote a few coins of your portfolio to digital assets to earn you a passive income in addition to your regular investment. Investing in cryptocurrency can be an easy way to make extra money without much sweat.

Cryptocurrencies also offer some of the best returns compared to other investment products. If done right, it can be an easy way to quickly accumulate money in your account with little effort. Again, compared to high-earning sectors like real estate, you don’t need large sums of money in order to invest in cryptocurrencies. You can always get started with a small amount and quickly grow up your portfolio thanks to the high rate of returns.

Conclusion

In uncertain times and unstable market conditions, investors usually design their investment strategies to increase variability and stability and reduce the risk levels. Cryptocurrencies have proved to be a better alternative, especially in the wake of the uncertainty of economic recovery from the pandemic. Digital assets offer a sound and solid investment opportunity to help you diversify your portfolio, earn passive income, and accelerate your rate of investment return earnings.

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