Where to invest: MCAs vs Crypto
Both Merchant Cash Advances and crypto are popular alternative assets, and either one might be a good option for you. However, while both offer the potential for high returns, they are very different investment vehicles.
This blog will cover the key need-to-know points to consider before you make your investment decisions, putting you in the best position to decide whether to invest in MCAs or cryptocurrency.
What are Merchant Cash Advances?
Merchant cash advances (MCAs) are a type of alternative lending option that provides quick access to capital for businesses. MCAs are not loans, but rather a lump sum of money that you give to a business in exchange for a percentage of its future sales.
What is Cryptocurrency?
Cryptocurrency is a digital or virtual currency. Bitcoin is the most well-known cryptocurrency, but there are many others, including Ethereum, Ripple, and Litecoin. Cryptocurrency can be bought and sold on various exchanges, and its value is determined by market demand.
Alright, now that we have definitions covered, let’s jump straight into the pros and cons.
Risk vs Reward of Investing in Merchant Cash Advances
More Reliable Returns: MCAs tend to offer a more reliable return rate than cryptocurrencies, typically ranging from 10-30%. On top of this, MCAs give you the option to invest in hundreds if not thousands of deals within your portfolio, massively diversifying your holdings within the asset class. Taken together, MCAs are generally thought of as being a more stable investment option for those looking to earn consistent returns.
Lower Risk: MCAs are secured by the future revenue of the business, unlike cryptocurrency, which is not linked to any tangible asset. Whilst it is the case that if the business fails to generate revenue, you may lose your investment, you will not be responsible for any additional debt.
Taking a historical view, the MCA industry has never experienced the catastrophic drop in total value that happened in the crypto space during 2018, where the price of Bitcoin lost 65% of its value between 6th January and 6 February 2018
In addition, professional debt recovery businesses are in place to maximize the chances that any money owed to you is recuperated from the MCA recipients. No such recovery process is in place in the cryptocurrency space.
Risk vs Reward of Investing in of Investing in Crypto
High Potential Returns: Cryptocurrency is known for its high volatility, which can lead to significant gains for investors who are willing to take on the risk. This does bring with it the inevitable flip side of the potential for massive losses.
Decentralized: Cryptocurrency is decentralized, meaning it is not controlled by any government or financial institution. This might be an attractive option if you are skeptical of traditional financial systems.
Fast and Cheap Transactions: Cryptocurrency transactions can be processed quickly and often at a low cost, however, this is also highly volatile. Crypto is renowned for having layers of fees and costs associated with it. Gas fees are one example of this. Gas is a fee that you pay on the Ethereum blockchain to carry out transactions like swapping or executing smart contracts, for example.
Privacy: Cryptocurrency transactions are anonymous, which can be a benefit for those who value privacy. However, the privacy and security of crypto wallets have come under increasing scrutiny. Reports estimate that crypto-hackers had stolen $ 1.4 billion from investors in the first 9 months of 2022 alone.
Regulatory issues: Cryptocurrency is largely unregulated, which can make it difficult for investors to navigate the legal landscape.
Like with any investment, the decision is going to be based on your tolerance for risk and your requirement for returns over a given timescale.
Investing in merchant cash advances and cryptocurrency both have their own unique advantages and disadvantages. It’s important to carefully consider your investment goals and risk tolerance before making a decision. By weighing the pros and cons of each option, you can make an informed decision that aligns with your financial objectives.
If you want to get started with MCA investing, you can do that here.