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3 different opinions: Which part of the salary should you invest in cryptocurrencies?

BbrAdmin by BbrAdmin
April 21, 2021
in Daily Financial News, currencies, Industry News
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Over the past few years, cryptocurrencies have become one of the most popular ways to invest. Cryptocurrencies are available worldwide and you do not need to have a certain amount of funds or a special license to invest in cryptocurrencies, unlike some other financial assets. You can invest in cryptocurrency both $1 and millions of dollars — it all depends on the investor’s ambitions and capabilities.

It should come as no surprise that the cryptocurrency market has been flooded with retail investors. Some people use cryptocurrencies for trading and try to make money from volatility since it is quite high compared to many traditional assets. Others see cryptocurrencies as a store of value and invest in cryptocurrencies for the longer term. Someone ubiquitously uses cryptocurrencies to carry out borderless transactions, which can be much cheaper and faster than an international bank transfer.

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  • Investing 1-2% for diversification
  • Put 5-10% of salary to form side passive income
  • Getting paid in crypto to manage your investments

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A lot of newcomers who just want to join the market usually wonder how much to invest in crypto. Crypto enthusiasts and financial experts often answer “never put more into crypto than you can afford to lose”. Indeed, in the cryptocurrency world, the price of the mistake is high.

Here are some of the most common opinions on which part of a salary can be earmarked for investing in cryptocurrencies.

Investing 1-2% for diversification

Most personal finance experts suggest sticking to the 50-30-20 rule, whereby 50% of income goes towards necessities, 30% towards discretionary spendings, and 20% towards investment and savings. At the same time, financial analysts argue that cryptocurrencies can be allocated from 1% to 10% when forming an investment portfolio.

In this case, you can consider investing in cryptocurrencies part of the income from this 20% that should go to savings and investments. For example, 1-2% of your salary, especially if you are already investing in other assets. Digital assets are weakly correlated with traditional assets and have high growth potential. It makes crypto a great asset for diversification.

At first glance, it might seem that 1-2% of the salary is too insignificant for investment to see any effect. In practice, most people do not invest any money at all and only accumulate it (if they can accumulate it). If people make investment decisions, then this most often happens by placing a relatively large amount of funds after a long period of time. In this case, the success of the investment can largely depend on the time of entry into the market.

With constant placing a small number of funds, you can end up with the same “large amount” that is most often invested after a long period. But in this case, the time issue is leveled. It reduces risks but also reduces potential income. This strategy is also known as dollar-cost averaging. Besides, 1-2% perfectly fits the rule “never put more into crypto than you can afford to lose”.

Put 5-10% of salary to form side passive income

This option can be good if you are deep in crypto and already have a reliable strategy for investing in cryptocurrencies. Putting 5-10% of the salary in crypto may seem risky in the short term. But it might be more reasonable if you are considering a long-term investment or strive to create passive income in cryptocurrency.

Cryptocurrencies such as Bitcoin are often used as a store of value due to their deflationary nature. As history shows, bitcoin performs strong growth in the long term. Even those who bought bitcoin at the highs, for example, at $20,000 at the end of 2017, three years later still multiplied their investments.

In turn, the cryptocurrency market provides various opportunities for generating passive income such as staking. Staking allows you to receive from 1% to more than 20% annually, depending on the cryptocurrency. The reward is distributed in the cryptocurrency itself. It can both improve the return in case the price of the coin rises, and reduce profitability when the price falls. In order to participate in staking, you need to own Proof-of-Stake coins and lock a certain amount of coins in a separate wallet.

Some cryptocurrency exchanges allow participating in staking simply by storing coins in an account. So you can just buy, for example, DOT to USD using crypto exchange or crypto trading app, hold it and receive a staking reward.

The choice of using cryptocurrencies is a personal one. You can just hold it, make it work for you (staking and other passive income ways), or do both things. If you allocate 5-10% of the salary for crypto, then in the end you can form a crypto portfolio from different ways of earning.

Getting paid in crypto to manage your investments

Getting paid in crypto is an option that is suitable for die-hard crypto enthusiasts. There are still many questions regarding regulation and taxes, so salary in cryptocurrency can be problematic in certain countries.

However, if you are getting paid in crypto, then the process of investing and distributing funds will become much easier. You can always determine how much you are ready to allocate only for cryptocurrencies, and how much fiat funds you need for usual spendings.

You won’t need to buy a few coins for fiat and lose a lot of money on commissions. You will already have a cryptocurrency, which, if necessary, can always be exchanged for fiat.

Also, if you need to make international transactions, then cryptocurrencies are also very useful and will save on transactions. In the case of everyday transactions, the question is more related to the adoption level of cryptocurrencies in your country or city.

If you are confident in the success of cryptocurrencies and you have the ability to use them instead of fiat, then getting paid in crypto can be a great alternative that will make the benefit from crypto even easier.

Tags: Getting paid in cryptoinvest in cryptoinvest in cryptocurrenciesinvesting in cryptocurrenciesmanage your investments
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