Is Crypto Investing International Investing?
Investing in crypto and digital assets is unlike any other form of investing. This is because with a few clicks you could be investing in international markets. This is not as simple with simple stocks and bond investments. Or at least not at the scale of crypto investments. In this blog, we break down how crypto-investing is international investing at a greater scale.
Returns and Risk
Investing in stocks and bonds is often limited to domestic markets. But exposure to international markets is important. International markets can potentially offer higher returns and risk diversification. Investment banks like Morgan Stanley and Goldman Sachs suggest that a 10-15% portion of portfolios be dedicated to emerging markets. This is because of expected growth potential. Emerging markets like China, India, South Korea, and Mexico have a larger runway for growth compared to mature markets like the United States, the United Kingdom, and the European Union.
In order to capture this return and diversify risk, international investing is sought. But international investing is difficult, expensive, and at a low scale.
The most used medium for investing internationally is through international funds, specialized financial products, or intermediaries. All of these mediums require many middlemen which increases fees and friction.
Let’s look at an example. Say you live in the United States and you’d like to invest in the Indian economy because the International Monetary Fund expects a GDP growth of 12.5% in 2021-22. If you’re a high-net-worth individual (HNI) or an accredited investor, you can go through an investment bank like the ones mentioned above. However, most people aren’t HNIs but want exposure to such markets.
Funds and products
The other options are to invest in an Indian equity fund. But these are expensive. This is because you have to work with a US fund that contacts an Indian fund and makes the investment on your behalf. That’s a tedious process.
Financial products like Depository Receipts (DP) can also be used. An American Depositary Receipt (ADRs) allows foreign companies to raise funds from US investors. But ADRs are often used by established companies. These companies have already raised money in the domestic markets. Investing in these companies does not have the same growth potential as investing directly in an emerging market.
International investing has an upside and a downside. The upside is higher returns from a market with higher growth potential. On the other hand, the downside is the expense. For retail investors, investing internationally does not have that much of an upside. This is because the companies have either already run-up or their growth potential after expenses are small. On the other hand, the downside is higher. The risk of indirectly investing in international markets is amplified at a retail level. So, who actually prefers international investing?
Reach and Reward
International investing is done as much for the growth potential as it is for the diversification. The very term “emerging markets” emphasizes this growth potential. However, international investing either through funds, ADRs, or even direct investment, doesn’t tap into this high growth potential. Not at a retail level at least.
This is because these forms of international investing target big foreign companies. International funds primarily take stocks within a market index (like the S&P500, the FTSE100, the Nifty 50, etc.), blue chip companies (well established, financially stable, and dominant), or sector leaders.
The only investors who can take part in early-stage investing in a high-growth company are venture capitalists (VCs). VCs are early to mid-stage big-money investors. Unlike VCs, it’s not possible for average investors to invest in early-stage companies internationally. Well, not in the traditional financial markets at least. But in the crypto markets, not only is international investing possible but early-stage international investing at that.
Crypto for international investing
Beyond Bitcoin and Ether, there are several cryptocurrencies to invest in. Coinmarketcap, lists over 9,200 coins. Many of them are smaller cryptocurrencies and even DeFi coins. After doing your due diligence, you’d find a list of coins with a specific use-case and market. This can be a governance token in Asia, a stablecoin in South America, or a file-sharing token in Europe.
What this allows is exposure to a new market with a specific use case. There might be nothing special about buying stablecoins like USDC, USDT, or DAI, in the United States or the EU. But in a country where all trading is done via a specific base stablecoin, there might be a premium for this. Governance tokens like MKR or LEND are tied to their specific global protocols. But there are some DeFi protocols that serve a specific market and country. Investing directly in these tokens gives you exposure to international markets.
This is unlike any other form of international investing. This ticks the three boxes we mentioned above with diversifying to international markets.
1. Risk diversification: Investing in specific crypto projects allows you to diversify your investments.
2. Low fees: Unlike investing via international funds or using financial instruments like ADRs, investing in region-focused cryptocurrencies require low fees
3. Early-stage: Since these protocols are early-stage, the growth potential is immense. Similar to a VC investing in start-ups.
Crypto Research then Invest
Like we said earlier, we aren’t here to give you coin recommendations or trading strategies. What we want to emphasize is the potential of crypto investments as international investments. For you to realize this potential you have to do your own research.
To help you with this research we’ve launched the Interaxis Academy to educate you on all things crypto. Here, we break down everything from technology to use case. We explain wallets, custody, insurance, and more. From breaking down DeFi protocols to understanding why rappers are creating NFTs. We provide education on everything in the cryptocurrency space.
Get started with crypto investing through our course for investors.
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