I have for myself that the irresistible apple from the Garden of Eden was actually a guava. I am a person who does not surrender easily to impulse purchases, but every time I go to the market and come across a fresh batch of guavas, I am maddened by the smell.
I even try to ignore it, but I walk my way through the halls thinking about her. In 90% of the time, impulse buying results in disappointment because the smell is much better than the fruit.
In the case of many investors – some beginners, others not so much – the irresistible temptation is past profitability. And nothing is able to seduce more than the three-digit profitability achieved by the cryptocurrency market in 2020.
You see, only Bitcoin has risen more than 400% in reais and has been on a frantic rally in the past few weeks. An appreciation that not only made the currency reach the historic top of $ 20,000 (previously recorded in 2017), but also doubled that amount, exceeding the $ 40,000 mark.
But cryptoactives did not make it through 2020 without feeling the coronavirus thump. The March liquidity crisis took bitcoin to the level of $ 3,000, but the recovery was much faster than in the traditional market, and the bottom of the world is already far away.
In this moment of euphoria, many investors follow the irresistible “smell” of profitability and go after a slice of that cake. It turns out that many face the high volatility of the class and are taken by surprise by losses that, in the very short term, are as big as the “promised” gains.
This text is part of a special series of Your Money on where to invest in 2021. Here is the complete list:
Dollar and gold
Real estate funds
Cryptocurrencies (you are here)
Valter Police (Financial Planner at Fiduc), Daniel Coquieri (COO of BitcoinTrade), CZ (CEO of Binance), Beibei Liu (CEO of Novadax), João Marco Braga da Cunha (portfolio manager at Hashdex) and Glauco contributed Bronz Cavalcanti (founding partner of BLP Asset)
Slow with the andor
While everyone believes that after an incredible 2020, what lies ahead is even better, no expert I spoke with endorses that this is a class of investments to make money in the short term.
I mean, you can even try, but “it’s almost like betting on the lottery.” The promising prospects for 2021 and the years to come take into account the long term, not the mind-boggling high of the past few months.
“You are projecting something that has happened in the past into the future. It doesn’t work that way, or things would be too easy ”, warns Valter Police, Fiduc’s financial planner (CFP), who manages investments and personal finances. And this is a message that he’s been giving a lot out there, since buzz always leads more and more people to seek information.
Financial managers, specialists and planners are categorical: there is no such thing as wanting to find the recipe that will make you a millionaire overnight. And don’t go out betting all your chips on one horse.
The strategy for a smart investment is a diversified portfolio, which, among other things, must have cryptocurrencies, the extra spice, with an allocation that does not exceed 10% – this limit is recommended only for those more daring investors.
João Marco Cunha, portfolio manager at Hashdex, comments that a price correction needs to be on investors’ radar. Daniel Coquieri, COO and founder of the exchange BitcoinTrade, also recalls that this euphoria is not what we saw throughout the year, as the market has been showing sustainable and consistent growth.
“No asset goes up forever and having this volatility is natural. The market does not yet know the new top or when there will be a moment of liquidation or profit-making, but in a moment it will come ”- Daniel Coquieri, BitcoinTrade
If you are looking for an investment with long-term goals and allocate a small portion of your assets that can earn you an enviable return, this may be the right investment.
The experts expect a consolidation and growth of the cryptocurrency market, which, according to them, is just beginning. The ecosystem has advanced, but it still has a lot to walk. It’s not too late to enter, even if bitcoin is hitting the $ 40,000 mark …
Rocket without brake
Although it is still only a very tiny slice of the financial market, the new boom in cryptocurrency investments has made the category’s market value exceed the $ 1 trillion mark, and the expectation is that this figure will continue to grow in the coming months and years.
But, where did all that money come from, precisely in a year of crisis?
It may seem contradictory, but it was precisely the crisis that gave extra gas to cryptocurrencies, especially bitcoin, which came to be seen by many as a kind of “digital gold”, a store of value like the famous golden metal and the dollar .
According to Glauco Bronz Cavalcanti, founding partner of BLP Asset, the scenario we had in 2020 is very similar to that seen during the time of bitcoin’s creation: the 2008 crisis, when governments issued fiat currencies in droves. This practice increases the fear of devaluation of these currencies and the growth of inflation.
While the balance sheet of the Federal Reserve and other central banks around the world only grows, Bitcoin has gone through an emission reduction event, called halving.
Digital currencies are decentralized, without a government dictating the rules and all their operations depend on the validation of the blockchain – a sequence of “blocks” that prove the origin, destination and movement of crypto.
More scarce, easy to store and with a simple transaction to transfer, Bitcoin finally attracted the attention of large institutional investors. With much of the world’s investment potential in hand, a small slice of the money they have available is capable of revolutionizing and expanding the cryptocurrency market.
Just to name a few, last year we had mega investors like Paul Tudor Jones, Stan Druckenmiller, Bill Miller, among others, admitting to investing in bitcoin and other crypto. Even Ray Dalio said that BTC is an ‘interesting’ alternative to gold.
Everyone wants a slice
Digital currencies still seem a long way from winning Warren Buffett, but they have won companies like MicroStrategy, Square and even major insurance companies in the United States, which now have part of their reserves in these assets.
Coquieri points out that although these changes were implemented in 2020, they did not happen overnight. All of this is the result of a process that has been going on for years. The expectation is that this flow will continue to increase.
The regulation could have gone faster, but there was a pandemic in the middle. In Brazil, the project that is being processed in the Chamber was stopped. Even so, there have been significant advances in the global scenario, which brings a much greater professionalism and confidence to the assets, which, it is worth remembering, are still very young, with only 11 years of “life”.
Cunha, from Hashdex, says that the projections back in early 2020 were positive, but no one could imagine that things would happen at this speed. To support this growth, the technology for the custody of these crypto assets, that is, storage, had to keep up. In the USA, the banks themselves were allowed to offer this service.
And the traditional financial market takes a closer look at them. The giant J.P. Morgan believes that the currency may exceed the $ 140,000 mark and Visa monitors projects that use Blockchain.
PayPal took the lead and started allowing transactions using bitcoins, which expands the user base by many millions. Experts see this as an important step in the search for popularization and naturalization of digital transactions.
“A bubble goes up, bursts and doesn’t come back. We didn’t have a movement like that here. People talk about a bubble, but I venture to say that in reality it is a self-fulfilling prophecy. The maturation of the market brings this positive cycle ”- Glauco Cavalcanti, BLP Asset
The institutional money that arrives not only makes the market grow, but also increases confidence in the segment. In addition, as these are longer-term strategies, the tendency is for the volatility of the main assets to decrease over time. The offering of new products such as the Hashdex Nasdaq Crypto Index ETF, the world’s first crypto index fund, strengthens the market’s maturity.
Ethereum is a very important asset for the development of most of the technologies in progress. This is because a segment that saw great growth last year – from $ 700 million to $ 15 billion – was DeFis, the decentralized finance.
In general, they are protocols that try to solve problems in the financial market by eliminating intermediaries such as a bank or a stock exchange, for example. Today it is even possible to even “borrow” from protocols whose returns return plus interest. And in 2020 and for the next few years, this network will undergo an update to gain scalability.
Here, technology and investment are all about
With technology refinement, the network is faster, more secure and brings new financial solutions. The experts with whom I spoke mentioned several times that we are at a time when this development is even more important than the price itself, since it guarantees that this is the future and that these assets should be valued in a relevant way in the long term.
So much so that no one wanted to risk “kicking” a bitcoin value by the end of 2021, but everyone said that it will certainly be greater than what we saw on December 31, 2020. The only exception was the CEO of Novadax, Beibei Liu, who said he “would not be surprised” if the coin reached $ 50,000.
The BLP Asset manager likes to make a comparison with the beginning of the internet. This is an analogy that I have heard several times during this period that I follow the market, from different specialists.
For him, people have always known that websites and the internet were the technology of the future and even then it took time to start investing and believing in it. The proof is that shares of companies like Amazon and Apple only reached the top recently, after more than 20 years of strong presence in the market.
Cavalcanti points out that, although more and more funds and investors are looking for it, it is difficult for most people to understand the transforming potential of these assets, even those who are experts in finance and computing.
2021 also promises to bring about changes in regulatory issues. João Cunha, from Hasdex, points out that the new SEC president, who corresponds to the American CVM, is more favorable to the universe of cryptocurrencies, which renews the hopes that a crypto ETF will be approved in the country. With a more favorable regulator, the expectation is that access will be facilitated, popularizing these assets.
Where and how to invest
Currently you can invest in cryptocurrencies directly on assets, via exchanges, or in funds with exposure to crypto.
The Hashdex manager and the BLP Asset manager recommend that you do not enter these assets in one go. The ideal is that you spread your contributions over a longer period of time, making an average price and taking advantage of specific opportunities.
Which cryptocurrency to choose?
Bitcoin may be the most famous ‘sister’ and the one that still holds the greatest trust from experts, but there are other options. Every day, new systems, protocols and projects appear. Some with long lives and others not so much.
Market maturation starts with Bitcoin and Ethereum, the most established currencies, but that should change with increasing liquidity. As I mentioned, the DeFis protocols are among the most valued assets in 2020. However, it can be more difficult for an investor without deep technological knowledge to identify the good options available.
When we talk about direct assets, Bitcoin and Ethereum appear among the preferences of the experts consulted by Your Money. BitcoinTrade’s COO also highlights some DeFis protocols that should continue to appreciate and grow, such as MakerDAO, Waves and Compound.
Cunha, from Hashdex, recalls that the smaller the currency, the potential for significant gains may even be greater, but the risk too – after all, “there is no free lunch”. For this reason, he recommends that the investor has a balanced position, exposing himself to the market as a whole instead of placing occasional bets on one or the other asset.
Financial planner Valter Police follows the same line and says that, because it is such a new, volatile and highly technical investment to maintain a diversified portfolio, he always suggests that the entry be made via funds, where managers are responsible for the selection and maintenance of this portfolio.
Police comments that direct investments can be made from R$ 50, but depending on the time of the investment, this amount does not even pay the fees for operation and transfer. Funds have greater restrictions on liquidity and movement, but the choice of how to invest will always depend on the restrictions and objectives of each investor.
Currently, in Brazil, there are eleven active funds in the market, from QR Asset Management, BLP Asset, Hashdex and Vitreo, aimed at both retail and qualified investors.
If you have questions about how to choose the best broker or how to open an account, Your Money has a comprehensive guide that can help you get started on your journey in the crypto world.