As a result of economic uncertainties coupled with higher inflation rates, many entrepreneurs, businesses, companies, as well as organizations are often on the lookout for viable ways of hedging their funds from inflation-related fluctuations. However, while cryptocurrencies are also subject to high levels of volatility, they are strategic alternatives for hedging your money against inflation over time due to the fact that they are fewer in circulation. Characteristically, many cryptocurrencies’ have capped their circulation and potential growth in the market.
Further, the fact that cryptocurrency is not regulated by governments or financial institutions makes it a more viable and potentially lucrative option for your cash investments. Cryptocurrencies put a limit on the maximum number of coins that can be in circulation and this increases their value. For instance, there will only be 21 million bitcoins in circulation. However, due to the high volatility characterizing cryptocurrencies, it is important to determine the amount of cash reserves for your business to allocate to cryptocurrencies.
Consider the following when allocating your cash reserves to cryptocurrency.
Part 1 – Select a Cryptocurrency/Company
1 Compare the market cap of different cryptocurrencies (in history and presently)
2 Evaluate the crypto’s availability in a majority of the major exchanges
3 Analyze the total supply and amount in circulation
4 Be keen on developers’ activities on your selected cryptocurrencies
5 Analyze the coins’ relation to others and movements up and down
6 Select a company with crypto-related interests
7 Assess the value and potential of your selected company
Part 2 – Deciding the Percentage to Allocate
8 Assess your business appetite for risk
9 Determine a practical percentage for your business to allocate to cryptocurrency
10 Start slow at about 1-2% and continue adding your allocation as you learn more
11 Consider diversifying your allocation across best performing cryptocurrencies
12 Avoid allocating more than 5% to cryptocurrency to avoid the impact of volatility swing on your portfolio
Part 3 – Diversifying Allocations
13 Consider investing in crypto-related companies
14 Purchase stocks in companies with a stake in crypto’s future
15 Allocate a percentage to more specialized index funds in a company with crypto interests
16 Allocate equal portions to individual stocks and personalized index funds to balance your portfolio
17 Analyze the charges for buying shares in companies with vested interests in crypto
18 Check that your investments are diversified over a broader fund
Notes:
- Use tools such as Holding Search to find out all the cryptocurrency-related mutual and index funds related to a company
- Some of the renowned companies with vested interests in cryptocurrency include Tesla, PayPal, Square, Marathon Digital Holdings (MARA), Bitfarms (BITF)
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