The widespread growth of digital assets presents investors with many questions, particularly related to why and how they should be added to a portfolio.
There are three key reasons why investors are choosing to allocate to ETFs offering exposure to digital assets, such as the Invesco Alerian Galaxy Crypto Economy ETF (SATO) and the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC).
First, in addition to being a large, growing asset class, digital assets are a transformative force shaping economic activity.
Well-known companies, such as Tesla and PayPal, and governments throughout the world continue to explore the benefits of leveraging cryptocurrencies and blockchain technology to improve their operations, according to an insight from Invesco.
90% of institutional investors surveyed recently believe that their own portfolios or their clients’ portfolios will include digital assets in the next five years, according to a 2021 survey by Fidelity.
Secondly, digital assets investing can also serve as a hedge against inflation, which has been top of mind for investors as inflation has reached decades-high levels and market volatility has followed.
“Many investors are attracted to Bitcoin, for example, because that cryptocurrency has a finite supply; only 21 million coins can ever be mined—governments can’t just print more of it, like they can with fiat currency,” Invesco wrote. “Because of this, digital assets with a finite supply in circulation may have the potential to hedge a portfolio against inflation, potentially like gold.”
On the other hand, other cryptocurrencies, including ether and tether, have an uncapped supply, and may not serve as an effective hedge against inflation, making it critical that investors are informed before allocating to the asset class.
Finally, digital asset investing serves as a way to further diversify a portfolio. Adding an alternative asset class sleeve to a portfolio can help avoid concentration risk and add the widespread benefits that well-diversified portfolios enjoy.
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