Because of the increased geopolitical arena tension and the financial market's plunge into crisis, as well as the crypto winter, one of the hottest topics is the search for effective investment opportunities. People usually pick currencies, cryptocurrencies, stocks, real estate, and precious metals as investment options. In this review, we listed all of the advantages and disadvantages of each one.
🔹 It can help protect savings from inflation.
🔹 Wide tools offer.
🔹 The low entry threshold for investors.
🔹 You can pick the format: physical or digital asset.
🔹 High liquidity: сurrency is easier to sell than, for example, real estate.
🔻 Some countries have restrictions directed at the foreign currency market.
🔻 In some countries, watchdogs use tools that can influence the foreign currency exchange rate.
🔻 Some restrictions may lead to the ban of foreign currency accounts.
🔻 Market unpredictability.
🔻 Earnings largely depend on the amount of investment.
Investment opportunities depend on your geographic position and certain geopolitics. For instance, if we are talking about second-world countries, as well as Europeans and US residents, considering dollar and euro investments would be a good idea due to the FED’s and ECB's plan to continue the fund rate increase. Stepping forward with the target mentioned in a goal to combat inflation means a boost for the dollar and euro as payment tools.
But investors should consider the fact that watchdogs showed a willingness to slow down the hikes, and the market already reacted to it with a splash of local growth (watch the S&P 500 chart). Although inflation remains unaffected, markets believe that previous steps taken by financial regulators will have an impact on the situation, and sooner or later we will see the results.
Despite reports that the Russian ruble became the world's strongest currency in 2022, you should probably avoid investing in RUB because its value appears fictitious. The thing is that soon after the Ukrainian invasion, the Russian government pushed many restrictions tied to the dollar and some other "unfriendly" currencies. Supported by a catastrophic decrease in imports, an unprecedented number of sanctions and foreign companies washing out of the country, the ruble became frozen. As a result, its apparent strength never seems to materialize.
🔹 Regulators' pressure on crypto is less than it is on fiat.
🔹 You can organize secure storage in a cold wallet.
🔹 Cryptocurrencies show the best growth results in the long term. Trading highly volatile cryptocurrencies can also earn you money.
🔹 A wide choice of available coins.
🔹 High liquidity.
🔻 The cryptocurrency market is not completely legalized. Regulatory pressure can cause irreparable harm to the crypto industry.
🔻 Because cryptocurrencies are less common than traditional money, their liquidity is lower.
🔻 Users in some regions may lose access to the crypto market due to the watchdog’s restrictions.
🔻 There are risks in facing the scam.
🔻 Wrong transactions can’t be refunded. Even minor mistakes can result in monetary losses.
As for 2023, cryptocurrency is no longer an unknown financial tool but a strong market participant that helps people all over the world circumvent sanctions and other restrictions on the financial market, as well as reduce money transfer expenses and secure their own savings. Digital assets' high volatility helps to earn in the short term, and some tools like bitcoin, with a limited supply, are widely used to combat traditional money inflation. Here are how cryptocurrency results, if we take BTC as a leader, compare with other tools since the very beginning of 2023:
Market tools performance in 2023. Source: Goldman Sachs.
You can purchase cryptocurrency through exchanges, peer-to-peer platforms, and on-ramp services. The last ones are the best, as onramps are absolutely legal and do use only crypto that wasn’t used in any illegal transactions. If you’re buying crypto for the first time, you can try the itez service which allows users to make purchases with a regular bank card and for fiat.
The best option to store coins is a cold wallet. It works offline, which means scammers can’t get online access to your assets.
A brief reminder: the cryptocurrency industry began with bitcoin. The coin was launched by Satoshi Nakamoto in 2009. The coin’s documentation says that BTC will help organize settlements without intermediaries. This approach does not require the mandatory trust of the parties since the operations are automated and all data is recorded in an open blockchain.
Since 2009, a bunch of other coins have appeared on the market. As a result, the industry was formally divided into two areas: classical cryptocurrencies, such as bitcoin, and stablecoins, coins that solved the high volatility problem. Let’s explore both options for investment in 2023.
🎻 Classic crypto
Bitcoin is not the only classic cryptocurrency. Its competitors in the top 10 by market capitalization are Ethereum (ETH), Binance Coin (BNB), and Dogecoin (DOGE). Each cryptocurrency has its own characteristics that need to be carefully observed before making an investment decision. Here are the main features of the mentioned coins:
👑 Bitcoin. The first and most capitalized cryptocurrency. Its creator is anonymous, which means that none of the regulators will be able to make claims against him. The bitcoin network is completely decentralized thanks to the Proof-of-Work (PoW) algorithm. The BTC supply is limited to 21 million coins. Limited supply and regular mining speed halvings boost bitcoin’s value.
💠 Ethereum. It is the second-largest classic cryptocurrency in terms of capitalization. Its creators are well-known. In the autumn of 2022, ETH moved from extremely energy-intensive PoW to a more eco-friendly Proof-of-Stake (PoS) algorithm. The changes, according to some members of the crypto community, have increased its centralization. Ethereum's supply is not limited. At the same time, developers are fighting inflation through periodic ETH burning.
💱 Binance Coin. The cryptocurrency of the largest centralized crypto exchange, Binance. The issuer of the coin, as in the case of Ethereum, is well-known. BNB also combines with ETH in a periodic burning scheme, although the cryptocurrency supply is limited. A total of 200 million BNB will be issued.
🐶 Dogecoin. A joke project based on a meme with a Shiba Inu dog. The DOGE developers do not hide their names either. The cryptocurrency’s supply, which, like bitcoin, works on the PoW algorithm, is not limited. Dogecoin has largely become known due to Tesla founder Elon Musk’s interest in the project.
Bitcoin, Ethereum, Binance Coin, Dogecoin at the top-10 most capitalized cryptocurrencies. Source: CoinMarketCap.
The classic cryptocurrency is highly volatile; this is what allows traders to earn much higher interest on coins compared to trading with other tools. However, this feature is not suitable for those who want to use digital assets for savings. The solution to the high volatility problem is stablecoins.
The term "stablecoin" refers to a cryptocurrency whose exchange rate is pegged to another, more stable asset, most often the US dollar. That makes one token a digital analogue of another asset, for example, foreign currency. Stablecoins are often used to save money during periods of financial market destabilization. We have a detailed article about stablecoins.
There are both centralized and decentralized stablecoins on the market. The first category is in high demand. Centralized stablecoins include coins such as Tether (USDT), USD Coin (USDC), and Binance USD (BUSD). All three are pegged to the US dollar at a ratio of 1:1. Emission, provision, and other processes related to the performance and maintenance of the token exchange rate are in the hands of project managers.
Tether (USDT), USD Coin (USDC), and Binance USD (BUSD) at the top-10 stablecoins. Source: CoinMarketCap.
Decentralized stablecoins are built using the automation of processes related to management and supply control. Unfortunately, after the collapse of one of the most capitalized representatives of the group, Terra USD, in May 2022, many market participants lost confidence in decentralized tools.
🔹 You can buy shares of the promising company.
🔹 High potential for long-term profit.
🔹 Wide choice of tools.
🔹 It is not necessary to buy a whole stock: fractional shares are also available.
🔹 Low entry threshold. It is not necessary to have a large amount of money at your disposal to enter the market.
🔻 There are some geographical restrictions: people in some countries can’t get access to the wide range of tools.
🔻 Account ban risks.
🔻 Stocks are suitable for long-term investments.
🔻 Stock market behavior largely depends on the watchdog’s actions.
🔻 Low liquidity in comparison with currencies.
There are many predictions on how the stock market will perform in 2023. Much depends on the policy of the US Federal Reserve System (FRS). In December 2022, after four interest rate increases of 0.75%, the regulator slowed down the hike to 0.5% and then to 0.25%. The regulator’s rhetoric softening may support the stock market, which makes it interesting to observe if you live in a region without any restrictions tied to stock market investment.
🏠 Real estate
🔹 Buying a property is a proven saving option.
🔹 Due to the financial crisis, it is possible to buy real estate at low prices.
🔹 Different types of real estate are available on the market: both residential and commercial.
🔹 Real estate, if rented out, can generate passive income.
🔹 It is not necessary to have the full sum of money to buy real estate. You can use mortgage programs.
🔻 Low liquidity. Selling currencies, cryptocurrencies, or stocks is easier than selling real estate.
🔻 High cost.
🔻 Risks of force majeure. For example, if a fire occurs in an uninsured apartment, the owner will suffer losses.
🔻 The need to invest in property maintenance.
🔻 The outlook for real estate valuation in the future is highly dependent on the region.
Since early 2023, Goldman Sachs has ranked real estate investment as one of the top ten best investment options in terms of returns. At the same time, it should be noted that the prospects for earning money on real estate purchases largely depend on the country's specifics. For example, against the background of the flow of migrants from the Russian Federation, housing prices in Georgia increased by 120 percent compared to last year. On the contrary, the cost of real estate in Russia, from which, according to minimal estimates, more than 600 thousand people have left since the beginning of the conflict with Ukraine, is declining.
Meanwhile, the Eurozone real estate market falls under scrutiny due to high rates. The market met 2023 with mortgage demand falling at a record pace despite decreasing rates. The United States is experiencing a similar situation.
🏆 Precious metals
🔹 Precious metals are a traditional tool for saving money during periods of financial market instability.
🔹 Prices for some precious metals are much more stable than those for other investment assets.
🔹 Some countries have revealed soft rules for precious metal purchases.
🔹 Several forms of acquiring precious metals are available on the market. For example, you can purchase a physical asset or invest through the purchase of a stablecoin tied to it.
🔹 The market offers a diverse range of precious metals.
🔻 There are generally low returns in the short term.
🔻 Investments in precious metals are only suitable for market participants focused on long-term investments.
🔻 A few use cases: precious metals, unlike currencies and even cryptocurrencies, cannot be used as a payment tool at stores.
🔻 Organizing the storage of physical precious metals may require additional costs.
🔻 To reach a good level of income in the long term, large investments are needed.
The most popular precious metal, gold, is called the currency of fear. In fact, the asset has historically grown during periods of financial market destabilization. This behavior of investors can be explained by their desire to save their savings using a tool that has been proven over the years. The massive buying of gold by Russians against the backdrop of the conflict between the Russian Federation and Ukraine aggravation once again proved the theory. By the way, the precious metal, according to Goldman Sachs, has entered the top 5 best investment assets since the beginning of the year, showing an increase of almost 7%.
Gold demand peaked during the COVID-19 pandemic, and purchasing power increased thanks to the Central Banks all over the world, which chose precious metal as the primary tool to protect the country's economy from negative political tensions in early 2022. All of this increased gold demand to a decade high and supported its price growth.
In the conditions of 2023, there are various ways to invest in precious metals. It is not necessary to purchase an asset in physical form. You can invest through stablecoins, for example Pax Gold (PAXG). The token is pegged to the cost of an ounce of gold. You can also open an impersonal metal account, invest in shares of a mining company, or buy an ingot or bullion coin.
To sum up
People who trust foreign currencies more than their own national fiat but live in a country that has revealed foreign currency restrictions may pay attention to the currencies' digital equivalents: stablecoins. For example, for those who value dollars, Tether, USD Coin, or Binance USD could be a perfect match. Purchasing traditional currency as an investment tool suits people who live in non-sanctioned countries.
Classic cryptocurrencies (such as bitcoin and ethereum) are suitable for investors who are willing to accept increased risks in exchange for the highest return rate.
Real estate and precious metals are options for long-term investments. Precious metals are unlikely to bring large profits in both the long and short term, but they will help protect capital from depreciation. In the case of housing, the choice depends on geography. Stock investment profit, in turn, depends on the watchdog's decisions.
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This material is not an investment recommendation. The financial and other transactions mentioned in the article are not a guide to action. Itez is not responsible for possible risks. The user should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about conducting any operations with cryptocurrency and / or tokens.