Whether you bought early or entered recently, the cryptocurrency market has been an extremely volatile sector for investors. Values can rise or fall by 95% or more in a matter of days, and there appears to be no warning about the arrival of large movements.
Does this volatility mean that cryptocurrencies aren't part of millennials' wallets? I think there is a place, but if you have a clear investment thesis with diversified assets cryptocurrencies can be a good investment for young investors.
Why invest in cryptocurrencies?
The first question to answer is why Invest in cryptovalute. Some investors think cryptocurrencies like Bitcoin are digital gold, while others think cryptocurrencies are a digital currency or a utility for developments such as smart contracts, metaverse or digital assets. Understanding your investment thesis will guide you towards the goal.
As with buying a stock, understanding your investment thesis may or may not make an investment in crypto possible. If the thesis is simply that a token will go up, based on technical analysis alone and for no fundamental reason, the thesis will crumble quickly, just like a stock with a weak underlying company.
Millennials with a long-term time horizon should look for investment opportunities where disruptive technology is being built, just as the internet was a disruptive technology in the XNUMXs, despite the idea of building an internet business looking insane to it. epoch. I think of many cryptocurrency projects as an ecosystem and their cryptocurrencies as the "money" of that ecosystem.
Building a digital ecosystem
Blockchain technology enables new technological innovations. For this reason I have kept my focus on Ethereum and Solana and have placed most of my exposure to cryptocurrencies in NFT.
These smart contract utility blockchains (led by Ethereum and Solana) allow information to be stored on the blockchain and developers to build tools and businesses around that data. This could be a metaverse project where a digital asset certifies ownership of land or an NFT that confers membership in a club (such as the Bored Ape Yacht Club).
These tokens are often called utility tokens, and there are dozens of them serving different purposes on the Web3. Exposure to cryptocurrencies that are building a larger ecosystem with real or digital world companies is where true value lies.
Understanding the risks
If you've been following the cryptocurrency markets for the past few months, you know that volatility is common. It is not uncommon for values to rise or fall 10% or more in a day, and some cryptocurrencies can reset to zero overnight.
Diversification will take some risk out of your portfolio, but it is vital that you do due diligence on how cryptocurrencies are managed and where there is risk. Not all cryptocurrencies will survive in the next few years and recognizing this risk is important for investors.
How to invest in cryptocurrencies like Millennials
It may seem counterintuitive, but I believe the same foolish mentality that works with stocks will work with cryptocurrencies too. Investing in projects that you believe in and founders who have a long-term vision of how to build value is how you make money.
And like in the stock market, a level of diversification is needed, because we never know when an unexpected risk will cause a cryptocurrency to plummet to zero.
The path is likely to be bumpy, but given the disruptive potential of cryptocurrencies and blockchain, I believe millennial investors with a multi-decade time horizon should have at least some exposure to cryptocurrencies. If the exposure is diversified and in projects that are growing and attracting users, the upside is still very high.