5 assets besides cryptocurrencies

Cryptocurrencies aren’t the only digital assets available to you. Discover other digital investments worth considering.

The growth of digital assets has been exponential and there are a number of options that can strengthen a diversified portfolio strategy. However, in such a fast-moving market, it is important to proceed with caution and to understand what is involved. 

European digital asset market

[Source: The Tokenizer]

Digital tokens – besides the main cryptocurrencies

Digital tokens are instruments that are represented on the blockchain. There are different ways to categorise the variety of digital tokens, but in short they can be defined as: (1) Stablecoins, (2) Utility tokens, (3) Payment tokens and (4) Security tokens. Security tokens and stablecoins are intended to have parity with a financial instrument, be it currencies, stocks, commodities, etc. Currently, large institutions are increasingly interested in exploring these solutions, especially in the debt market. 

Utility tokens refer to crypto assets that are required to operate on a particular blockchain. For example, the Ethereum’s Ether can be considered a utility token. However, Ether can also be used as a means of payment, which is why it is classified as a payment token. In other words, the classifications are not unique to all cryptocurrencies. A smart contract on the Ethereum network can be used to create a stablecoin (as is the case with Tether: USDT). In short, there are many digital tokens and many ways to classify them. In fact, we can expect new, more granular classifications in the future, given the wave of innovation that has taken place in the sector.

Discover 5 alternative assets that you should explore in addition to the most widely used cryptocurrencies.

1. Stablecoins, greater stability

Stablecoins have been around for a few years, but they are attracting increasing interest in both the digital and traditional markets. The value of stablecoins has been growing year on year and has already exceeded $100 billion. 

Number of stablecoins on the market 

[Source: Coindesk]

Stablecoins are digital assets whose value is linked to a reference basket of physical assets. These are usually fiat currencies, but can also be other reference assets like gold or oil. Stablecoins are therefore a way of avoiding the high levels of volatility usually associated with the cryptocurrency market. 

Investors can use stablecoins as a way to diversify their portfolios. This is particularly useful in highly volatile markets, where some protection is needed during periods of greater uncertainty. However, while they may offer more stability than cryptocurrencies, they are still a risky investment. 

2. Central Bank Digital Currency, for greater regulatory oversight 

Thanks to advances in technology and the declining use of physical cash, central banks around the world are now exploring the potential benefits of issuing digital currencies. As of July 2022, nearly 100 central bank digital currencies were in the research and development phase, and two were fully launched.

A Central Bank Digital Currency, such as the Digital Euro Digital, is nothing more than a stablecoin issued by central banks. Unlike cryptocurrencies, which are not issued or managed by any official entity, central bank digital currencies are guaranteed by the government of the issuing country. As such, all central bank digital currencies are stable coins, but not all stablecoins are central bank digital currencies, as they are not always created or issued by central banks.

3. ETFs, indirect exposure to digital assets

The value of ETFs – Exchange Traded Funds – has increased by almost tenfold globally between 2003 and 2022, making them one of the most popular products among all types of investors. 

[Source: Statista]

ETFs are a regulated way for investors to gain exposure to the cryptocurrency market. They replicate digital assets such as cryptocurrencies, but because they are regulated and overseen by financial authorities, they offer an added layer of security compared to some cryptocurrency exchanges.

4. Crypto-FX, trading between different currencies

Crypto-FXs are financial instruments that allow investors to take exchange rate risk between fiat currencies and various cryptocurrencies in a simple and practical way. In other words, the investor does not take the risk of holding the crypto asset directly, but rather the derivative of the exchange rate between the cryptocurrency and the fiat currency. This reduces the risk of losing assets due to improper procedures by the investor (e.g. loss of cryptographic keys). It also allows the investor to leverage positions to capture more of the market’s volatility. 

Bitcoin volatility vs. Crypto-FX 

[Source: Learn ByBit]

The difference between the cryptocurrency and FX markets is clear: the volatility of the former is significantly higher. However, it is important to remember that Crypto-FX also carries significant risks. Volatility can lead to significant losses if investors are not well informed and do not manage risk and margins properly.

5. NFTs, the future of digital property

Between 2023 and 2030, the global NTF market is expected to grow at a compound annual growth rate of 34.2%.

NFT market value (USD billion)

[Source: Grand View Research]

NFTs are unique, indivisible digital tokens based on blockchain technology. They provide a way to register digital ownership or authenticity of exclusive assets such as art, video, music, games and other types of digital content. The NFT market is very active, with buyers and sellers able to negotiate prices that vary according to demand, rarity and the reputation of the creator. Just as investors can invest in art, you can diversify your portfolio by buying and selling NFTs.

Banco Carregosa, helping you manage your digital assets

As financial markets evolve towards the inclusion of more and more digital assets, it is essential to be aware of the challenges and take advantage of the opportunities. You can count on the expert advice offered by Banco Carregosa to help you develop personalised strategies tailored to meet your individual financial objectives. Contact us and make informed decisions about investing in digital assets.