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Cryptocurrencies are the best performing assets of 2020. It beats gold that has been occupying the place for years. A Bloomberg Galaxy Index indicates a 66% value increase in cryptos in 2020. A complete mark of 20% on gold. 

Cryptos have outperformed the other global stocks, commodities, and bonds.

This article looks into the reasons for the rise of crypto. It also visits the future of the two assets. In the end, you should be able to make investment decisions for future returns. 

The Rise of the Defi Coins 

The main reason for the crypto run is due to the decentralized finance upturn. The Defi coins have been on a rally throughout the year. The coins market capitalization hit the values of over $9billion—a run from the lows of $700million. 

The Defi coins have become attractive due to their operating platform. They use smart contracts to complete transactions. It eliminates the need for intermediaries, like banks and lawyers, in transactions. It instead relies on online blockchain technology. 

The DeFi coins offer several online services. Some like Compound and Aave support borrowing and lending cryptos. Augur allows for betting on outcomes. Others like Synthetix provides for creating and exchanging derivatives of real-world assets. 

The Defi coins improved, outperforming Bitcoin at some point. 

The Defi coins improvement affects more than just coins. They have also been impactful on Ethereum. Ethereum provides the operating platform for the Defi coins. A rise in the Defi means an equal increase to the Ethereum platform. 

Ethereum has been on a growth path throughout the year. It looks to increase more into the next financial year. This is due to the other development within the platform. It is in the advanced stages of developing the Ethereum 2.0. 

Other Reasons for the Crypto Top Performance  

Apart from the Defi, other cryptos have also performed well. Some of the top reasons for such increase are; 

• Coronavirus effects – the coronavirus pandemic has been rough on the traditional stocks. The economy has gone down with the fiat currencies devaluing. Some users have considered replacing USD as the world's currency reserve. The pandemic still has been great on the cryptos. Most people lost trust and confidence in the fiat. Crypto is the best alternative currency. Cryptos also have several use factors. They are storage of value, assets, and several more. The period also saw an increased digital world adoption. Cryptos are digital currencies. An increase in digital activities means an improvement on the coins.

• Increased institutional investors – even though cryptos have been growing, most institutional investors have shied off. These investors tend to have strict guidelines on investments. They only want assured investments, as most are venture funds. That is why they prefer assured stocks. The institutional investors are now embracing cryptos. They now have access to the coins in the form of shares. Companies like Grayscale Bitcoin Trust have made purchasing Bitcoin over the counter possible. The cryptos are also becoming mainstream hence more regulations. Most Bitcoin exchanges undergo regulations and are secure. 

• The rise of the crypto derivatives – investing in cryptos is risky. The derivatives are the way to invest without the underlying risks. They operate like traditional stocks. They also come with stability and regulations. The past year has seen a sustained increase in the derivatives trade. They also have regulations and stability. Some of the top derivatives are the Bitcoin futures and future swaps.

• Increased liquidity – cryptos in the earlier days struggled to attract users. Most people trusted in the fiat currencies. The rise of the cryptos comes with acute uptake. More traders are using virtual currencies, unlike never before. The increased liquidity has led to active crypto exchanges. Crypto wallets are also becoming more secure. The more the liquidity increases, it becomes viable than gold. It becomes more accessible to trade-in. 

The Future of Gold and Cryptos 

Trends are a factor in investments. Traders don't know whether to embrace cryptos or stick to gold. The recent crypto developments would make it seem the ideal investment. After becoming so functional, it appears as the asset of the future. 

There are still concerns with cryptos. Most of the protagonists have pointed out its volatility as the main issue. The digital currencies have formed a regular price fluctuation pattern. They tend to rise and fall within the years. Observing tools like technical analysis shows similar price market movements. 

The currencies seem to be on a similar run as the 2017 crypto bubble. The Defi coins have already started declining. Cryptos like Ether fell from highs of $482 to $340 within five days. The other defi currencies have also taken a similar hit. 

The same decline of the Defi coincided with the Bitcoin challenges. After the sustained value increase, the coin is becoming stagnant. There are already concerns about the possibility of the coin hitting below $10k. From all indications, the coin trading below $10k is catastrophic. Most traders would withdraw to avoid losses. This might end up in a market free fall. 

The future of cryptos is volatile. You can never be too sure what the next financial year holds. It, however, seems headed for a bearish price movement. The market is likely to go on a correction mode. 

The crypto price movements are different from that of gold. Gold is one of the most stable assets. It has acted as the fiat currency reservoir at some point. It also has a sustained price increase of 15% per year. It is yet to change on that.

The best way to ensure return on investment is by diversifying investments. Invest in both the traditional stocks and the cryptos. Even though cryptos are growing, they are still volatile. Gold always keeps you safe, no matter the market movement. 

Bottom Line

The rise of crypto has been on for some time. The coins have been gaining more users as the fiat declines. This year has been exceptional for digital currencies. They have become the best assets as the stocks decline. 

The growth of crypto might stagnate after some time. The best way to invest is by diversification. You are safe, whatever the market price movements in both. 

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