Blockchain technology has been a breakthrough technology that has had a huge impact on our lives. The average person doesn’t understand the significance of blockchain, but it is revolutionizing the financial sector.
If you are familiar with bitcoin, you probably realize that it was founded on the blockchain network. Blockchain has since been used in countless other applications, such as IP authentication and fraud prevention in the financial sector. However, it is still most important in the field of cryptocurrencies.
As the blockchain continues to evolve, it is bringing a number of other benefits for cryptocurrency investors. One of the biggest advantages of blockchain changes is that they have led to a number of new investing and storage options, such as cryptocurrency ATMs and cryptocurrency baskets.
Blockchain Has Made Cryptocurrency Baskets a Possibility
Cryptocurrency is both a subject of fascination and debate. For some individuals, it’s the currency of the future, pushing many people to invest in coins, tokens, and blockchain technology. Many developers have also started building tools for cryptocurrencies, such as trading platforms, digital wallets (an XMR wallet being only one of many examples), and data analytics tools. Others, however, are more skeptical about how profitable these digital coins really are, considering the highly volatile nature of the cryptocurrency market.
New investors in the cryptocurrency space often have a difficult time navigating the complicated processes underlying crypto. Blockchain has made a lot of these processes more convenient, but people still might have difficulty navigating them on the user end. Coupled with rapid daily market fluctuations, it’s easy to see why beginners often feel hesitant to invest in virtual currencies. Hence, many newcomers tend to look at cryptocurrency baskets first.
Investing in cryptocurrency baskets—or token baskets, as others call them—is often considered as the safer and easier way to get into crypto investments. Though it’s still a high-risk investment, crypto baskets can mitigate risks in various ways. To learn more about what crypto baskets are and what their potential investment value can be, continue reading below.
What Are Cryptocurrency Baskets?
A cryptocurrency basket can refer to a collection of digital assets—such as cryptocurrencies or tokens—that investors can buy and manage as a bundle. In this manner, investors can monitor their digital assets as a group rather than oversee them individually.
Cryptocurrency baskets are usually seen as an investment vehicle of choice for novice investors. But after gaining popularity in 2018, more diverse options have come to market, with some baskets catering to more experienced investors.
Various investment platforms form their baskets through smart contracts, which are programs in a blockchain that activate when certain conditions are met. Typically, each platform has its own set of guidelines and rubrics on what comprises a basket as well as notable metric points (such as volatility and developer activity) for an investor’s reference.
Reasons Why Blockchain-Based Cryptocurrency Baskets Are Popular
Whether you’re a novice or a veteran when it comes to traditional investments, crypto baskets may just be a more accessible way of entering the digital currency market. That being said, it’s understandable to have some reservations about putting your hard-earned money into any speculative investment. If you’re still unconvinced about their potential benefits, here are some reasons why crypto baskets that are managed through the blockchain could be worthwhile additions to any investment portfolio:
They Save Time and Money
The creation of crypto baskets, developers hope, will make investing in digital coins less daunting and easier for individuals who are just getting started in the world of cryptocurrency. By offering cryptocurrencies and tokens in bundles, the new investor can save time and effort as they won’t have to research each asset individually. As a result, the allocation process of building a crypto portfolio takes less effort to accomplish overall.
They Can Help Diversify Portfolios
Blockchain has been a saving grace for investors concerned about risk management. Risk management is a critical part of investing, whether it involves traditional stocks or digital assets. However, managing risks is especially important in a market where prices and values can swing exceedingly high or low at any given point. Hence, it’s standard practice for investors to not put all their eggs in one basket, so to speak.
Fortunately, this adage applies to crypto baskets differently. Each crypto basket holds multiple different assets much like how a traditional index fund is composed of various types of assets. Thus, by getting a crypto basket, investors can quickly acquire a horde of different cryptocurrencies and diversify their crypto portfolios within a single exchange.
They Can Mitigate Your Overall Risk
Cryptocurrency is notoriously volatile, and as such, is considered a risky venture for investors. As stated earlier, a diversified portfolio with crypto baskets can help mitigate these risks. Even if one asset in the basket experiences a dramatic price swing, it will have less impact on your portfolio over the long run. This translates to lower overall volatility, which is a significant consideration in a highly unpredictable market.
The Potential Downsides of Cryptocurrency Baskets
As useful as crypto baskets are, they do have some limitations that may make them less ideal for certain types of investors.
Firstly, some investors like to have full control of the assets they invest in. As such, cryptocurrency baskets—well-curated as they are—may not contain the specific assets they want. Thus, certain investors will prefer to research and purchase each type of coin themselves rather than getting a crypto basket.
Secondly, the returns of crypto baskets may not be as high as those that can be gained from investing in single digital assets. The reason for this lies in risk and volatility. The more volatile an asset is, the greater the chance of a higher return. Since crypto baskets offer lower volatility, they may generate lower returns as a result.
Should You Invest in Cryptocurrency Baskets Supported by Blockchain?
Investing in cryptocurrency is like riding a rollercoaster. It has extreme ups and downs, which both attract and repel investors from participating in the market. Fortunately, developments in blockchain have helped mitigate some of these issues by providing stability and offering more convenient solutions to end users.
From an investment standpoint, crypto baskets are exceedingly helpful since they’re easier to monitor and can significantly diversify an investor’s portfolio. They may also be a more stable investment to make due to their integration with blockchain, which counts for a lot, given the constantly fluctuating metrics in the crypto industry.
Nevertheless, like any other coin in the cryptocurrency market, crypto baskets also come with their unique sets of risks and limitations. Whether they’re worth investing in or not highly depends on the investor’s mindset and preferred strategies. All things considered, however, crypto baskets are a great place to start for new investors or for those who prefer investing in something a little less risky.