Alternative investments are investments that are not traditional. Traditional investments usually include stocks, bonds and cash — such as forex markets. These investment types have been around for a long time and have highly regulated frameworks and structures.
The alternative investment market has gained traction in the past decade or so, and is usually something that institutional investors or high net investors dabble in. According to data, investment firms keep this section of their portfolios’ at about 10%. Alternative markets include private equity, hedge funds, managed futures, real estate, commodities and derivatives contracts.
These alternative investments are ideal for individuals looking to diversify their portfolio. These investments generally have little to no correlation with traditional investments, and so are a good way for individuals or investments firms to diversify and offset risks present within the traditional investments in their portfolio. Alternative investment markets tend to have a looser regulatory framework that surrounds it and is not as closely monitored. Usually, accredited investors or only high net worth individuals have access to alternative investment markets.
In the past couple of years, a new type of alternative investment has made itself available to investors — cryptocurrency. There is still a lively debate about which asset class crypto investments should fall under, but there is no doubt that it falls under the large umbrella of alternative investments. Crypto investments are unfavorable for a few reasons — one of them being that the crypto market is still largely unregulated, even more so than other alternative investments. Another issue that plagues alternative investment markets is that the low regulation creates an ideal environment for scams and Ponzi schemes to flourish. There’s no doubt that after Bitcoin’s meteoric price rise in December of 2017, a large number of individuals ran scams to capitalize on the greed of the general public to get in the crypto trade game.
Although these reasons are valid and still continue to plague the crypto market to some degree, the advantages of the market cannot be understated. When comparing private equity investments, over a period of two decades, the average ROI is about 12%, which is still higher than the average ROI of the traditional stock market that is about 7%. Venture Capital investments have an annualized return of about 30%. None of these hold a candle to the average return on Investments on crypto assets. The average so far stands at about 1,320%.
Further, traditional and alternative investments are limited by geographical limitations. Someone from one country cannot easily trade in the traditional or alternative markets of another country. But the crypto market has no such limitations. Anyone, from anywhere, can invest in a cryptocurrency regardless of what country that crypto asset was launched from. Moreover, crypto trading platform operates 24×7 that allow traders to make constant trades — the market literally never sleeps.
The status of crypto assets is still up for discussion, and it remains to be seen what regulatory framework will be put into place to monitor the market.
Do you think crypto assets are an alternative investment worth trading in? Let us know in the comments below!