Over the last few years, Merchant Cash Advances (MCAs) and cryptocurrencies have both emerged as interesting alternatives to traditional investments. But there is still quite a lot of confusion about what exactly crypto is, how it works, and how exactly it compares with other types of alternatives.
To bring some clarity, this blog post will cover how MCAs compare to investing in cryptocurrencies. We will analyze the trends shaping the investment strategy landscape, and highlight the potential of cryptocurrencies as alternative assets.
MCA vs. Crypto: A Comparative Analysis
When considering alternative assets, MCAs, and cryptocurrencies come with distinct characteristics for you to think over. Let’s dive into a comparative analysis to understand their key differences:
Risk and Volatility
MCAs: Merchant Cash Advances are generally considered lower risk compared to cryptocurrencies. MCAs are based on future sales of businesses, which provide a certain level of predictability and stability.
Crypto: Cryptocurrencies, on the other hand, are known for their high volatility and inherent market risks. Their value can fluctuate significantly within short periods, which can result in substantial gains or losses. Please see the Terra USD crash (during a single week in 2022, the collapse of stablecoin Terra wiped out an estimated half a trillion USD from the cryptocurrency markets) and other crypto winter data.
Cash Flow and Yield
MCAs: MCAs offer a reliable cash flow stream as they are repaid through a fixed percentage of a business’s future sales. This consistent cash flow can provide you with stability and a predictable income. Our 24-month note, for example, pays out quarterly, and our self-directed model pays out as often as every day.
Crypto: Cryptocurrencies do not generate cash flow in the traditional sense. Instead, their value is derived from market demand and supply dynamics, which can lead to capital appreciation or depreciation.
Market Maturity and Liquidity
MCAs: The MCA market is relatively mature, with established players and a track record of performance. At Supervest, we have almost a decade of delivering results to our clients and more than $87 million successfully invested in our platform.
Crypto: Cryptocurrencies are a relatively nascent market, characterized by lots of innovation and oftentimes unclear and rapidly evolving regulations. Liquidity can vary significantly between different cryptocurrencies and trading platforms. This isn’t a bad thing per se, it just depends on how high your risk appetite is.
The Trends: Implications for Alternative Asset Investment Strategies
As the investment landscape continues to evolve, we hope that the following trends can provide you with some insights into the role of cryptocurrencies as alternative assets and their impact on investment strategies:
Increasing Institutional Adoption:
Institutional investors are showing a tentative interest in cryptocurrencies as they recognize their potential for diversification and attractive, if volatile, returns. According to a survey conducted by Fidelity Digital Assets, 70% of institutional investors have plans to invest in cryptocurrencies in the future.
You might find it useful to check in with the crypto fear and greed index here to keep an eye on general market sentiment.
Governments and regulatory bodies are increasingly acknowledging and developing frameworks for cryptocurrencies, which has been intermittently enhancing investor confidence. Regulatory clarity can lead to improved infrastructure, increased market participation, and reduced volatility, making cryptocurrencies more appealing as alternative assets. But again, this is still pretty patchy and changeable.
Evolving Investor Sentiment:
The rise of decentralized finance (DeFi) and innovative blockchain applications has attracted a new wave of investors seeking exposure to crypto-assets. Growing retail investor participation and the influence of social media on investment decisions contribute to the evolving sentiment and potential market volatility. Again, see the fear and greed index to keep tabs on this.
Take the next step to expand your investment horizons and discover the rewards that MCAs can bring to your portfolio here.