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Why you need crypto in your portfolio

Diversify your portfolio with top cryptocurrencies
Diversify your portfolio with top cryptocurrencies (Jeff Mccollough / EyeEm via Getty Images)

You’ve heard of bitcoin, but how much do you really know about cryptoassets? Some cryptoassets are digital currencies that take the form of “coins'' or tokens that use decentralised blockchain technology to make secure transactions. This means no one person or entity can control the platform they’re built upon. Crypto has grown in popularity in recent years, and has become the go-to option for many investors.

eToro’s crypto enables you to buy individual assets directly, as well as a CryptoPortfolio investment strategy, which provides diversified exposure to the market. Overseen by eToro’s investment committee, it offers several options for people wishing to invest in the crypto market.

What you need to know about crypto

Cryptoassets are very volatile, and it can be common to see double-digit percentage fluctuations in one day. Small altcoins can be even more volatile and should be viewed as speculative investments. This can make investing in crypto very risky.

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Like other investments, cryptoassets are linked to supply and demand, but it can be hard to determine what makes it so volatile. This makes it a high-risk asset, so it’s important to develop a risk management strategy before investing. It can be a good idea to invest in several cryptos so your risk is spread out. Blockchain technology allows trust between unknown counterparties the world over, so crypto can be bought and sold with the need for a middleman - this means cryptos can be bought and sold 24/7.

Is crypto the way of the future?

An increasing number of big corporate brands, such as Tesla and Starbucks, are starting to accept crypto as payment. This has led some investors to believe that crypto could soon be widely accepted alongside traditional currencies. More and more places are starting to accept bitcoin payments, and at the start of 2020 it was estimated that 14,000 shops globally accepted bitcoin.

However, for the use of bitcoin to expand it will need its smaller denomination - known as satoshis - to be used more widely. Just as there are 100 cents to one dollar, there are 100 million satoshis to one bitcoin. Once satoshis increase in value they could potentially be used more widely to pay for everyday items. It’s believed that over time, bitcoin and other cryptos will become accepted forms of payment that are widely used, as well as being used as investments.

Which cryptoassets do I need to know about?

Bitcoin

The first and largest crypto, bitcoin (BTC) launched in 2009, and supporters talk about it becoming the global currency of the future. Bitcoin is considered the benchmark of the crypto market, and whatever its price does, other assets tend to follow. Its price has been climbing since September 2020. However, in 2017 it made increasing gains before collapsing at the end of 2018, showing that even large uplifts can’t be guaranteed to stay. This time round there is more institutional capital flowing into the crypto, making some believe its price could become less volatile. Buying bitcoin on eToro is easy; we provide a virtual portfolio function so you can become more familiar with investing in crypto. You can also interact with other investors on the platform and see what some of the top investors on the platform think about the asset.

Ethereum

The second largest crypto in the world, Ethereum (ETH), hit an all-time high in February this year. Ethereum often moves in line with bitcoin, but in recent months has surged higher as bitcoin trades sideways. Some investors view ethereum as the future leader of the crypto world. Not intended to be a currency, its blockchain network allows other developers to build applications on, using its key feature - smart contracts. Buying ethereum’s digital currency, ether, on eToro is simple as our interface makes it ideal for beginners. You can also buy ether fractionally, so you don’t need to buy a full token to get started.

Cardano (ADA)

One of the fastest growing cryptos, Cardano (ADA), was released in 2015, and is currently the third largest cryptoasset. A rival to ethereum, its technology is advancing quickly and there’s speculation it will eventually take over ethereum as the go to platform for decentralised applications (dApps). It’s up over 600 per cent since the beginning of the year and tripled in value in February alone. At eToro you can see the cardano price, chart and conversions in one place, so you can get a good idea of sentiment with all the tools you need.

For more information on crypto and how to invest in them, visit eToro.

Disclaimer:

eToro AUS Capital Pty Ltd, ABN 66 612 791 803 AFSL 491139. CFDs are highly leveraged and risky, and may not be suitable for all investors. You may lose substantially more than your initial investment. This information has been prepared without taking your objectives, financial situation or needs into account. You should obtain advice independently in light of your own objectives, financial situation or needs and refer to our FSG and PDS before deciding whether to trade with us. You can get a copy of the PDS fromour website