Impact of Cryptocurrency on Portfolio Risk Mitigation

The cryptocurrency market has been on the rise in the recent past due to increasing acceptance of digital currency by merchants and business cooperates. After several awareness campaigns by crypto organizations, many companies have adopted cryptocurrencies to effect payment systems. In a bid to meet the companies’ demands and those of individual customers, the cryptocurrency market has been on the forefront to ensure perfectionism in the business field. Therefore, this essay explains the impact of the cryptocurrency market in mitigating portfolio risks for corporate companies. The article describes the benefits of cryptocurrencies and their direct relationship to decisions of corporate finance.

Integration of Cryptocurrency in Safeguarding Customer Privacy

Through brilliant innovative ideas, the cryptocurrency market has presented various essential aspects and outstanding strengths to the industry that help companies to mitigate portfolio risks (Howard, 2014). The critical element that the cryptocurrency market has put into consideration is the security of the client(Inci & Lagasse, 2019). Most people value the privacy of their transactions and the account balances of their funds. The cryptocurrency market, especially the Bitcoin, has the blockchain system, which g ranked as one of the most secure transaction systems. The blockchain consists of computer-generated puzzles that provide security to everyone’s transactions (Klier, 2009). It is thus difficult for hackers to hack the blockchain system since it develops alternating codes every second to fill any available loopholes, thus creating patterns consisting of puzzles. With such a system, a client gets guaranteed their security. The security also protects transactions against traceability. Once one sends cryptocurrency from their wallet, another different code gets generated and assigned to that wallet. Therefore, making reverse traceability difficult. Thus, companies that have adopted cryptocurrency mode of payment can well boast of their ability to protect client’s privacy in transactions.

Mitigation of Risk Portfolio Through Introduction of Low Transaction Fees

Improvement of the convenience of cryptocurrency markets has led to the introduction of low transaction fees, which is essential in the mitigation of portfolio risks of large corporates (Howard, 2014). With cryptocurrency, there are no limits on transaction amounts and times per day or within a specified period. This freedom makes it better for the customers to adapt the system since one can pay for several items within a day and pay any amount without restrictions and statements to justify the transactions. Cryptocurrencies have been so much convenient in the elimination of transaction limits, low transaction fees, and fast trades(Härdle, Harvey & Reule, 2019). Another feature of the cryptocurrency market is fast transactions; people can complete transactions to any part of the world within less than an hour. Convenience is always the number one determinant of a company’s success if listed on the portfolio. Therefore, for companies seeking to improve their collection, integration of cryptocurrency has been instrumental in ensuring fast and safe transactions that have no amount limit. An added advantage of cryptocurrencies is that operations get carried out on peer-to-peer sites where there is a direct transaction between the sender and recipient. By so doing, the market has thus managed to cut off intermediaries who are well known for exploiting clients for the tasks they did not do or did halfway.

Involvement of Cryptocurrency Derivatives in Profit Accumulative

Another great benefit of cryptocurrency is the fact that they are trade commodities, and people either buy or sell in the prediction of the future price. This agreement of predicting the next sale or purchase value gets referred to as the cryptocurrency derivative (Klier, 2009). The cryptocurrency derivative is dependent on the future predicted value of the cryptocurrency(Härdle, Harvey & Reule, 2019). One acquires profit if the trend goes in favor of their prediction, and vice versa. The cryptocurrency market has immensely captured the entire market scope since it ensures that one can make a profit in either trend of prices, depending on the choice of their prediction(Härdle, Harvey & Reule, 2019). Precisely, the market allows a trader to earn a profit, depending on the cryptocurrency value prediction.

Incorporation of Cryptocurrency Payment Systems in Corporate Organizations

Cryptocurrency derivatives are as a result of global digitalization. Since individuals and corporates recognize cryptocurrencies, they are vital economic assets in the transformation of ecosystems that entail businesses. However, significant risks accompany the cryptocurrencies due to the high price volatility in the market.The adoption of cryptocurrency as payment systems within corporate companies has greatly influenced finance decisions within corporates. Corporates have been on the forefront to utilize cryptocurrency markets to determine their financial decisions regarding the mitigation of portfolio risks (Culp, 2002). For instance, the decisions to incorporate cryptocurrency payment systems is well integrated into economic systems by many corporate institutions as a way of effecting a faster and more reliable means of payment. Some cryptocurrencies, such as Bitcoin, have gained both value and popularity over time and shown tremendous volatility. This rapid achievement has left it as the most valuable cryptocurrency(Gao & Hong, 2017). For this reason, most corporates want to get associated with any aspect of the digital currency to attract more customers who are either interested in the cryptocurrency or are willing to adopt the payment systems and even trades.

Impact of Cryptocurrencies on Determining Return on Investment

Since portfolio risk involves a lower return on investment that the expected value by the entrepreneur, there is a need for companies to choose the cryptocurrency to incorporate in its transactions to avoid further risks. Cryptocurrencies are also associated with significant risks and may affect the portfolio risk adversely by worsening it, or by mitigation of the situation(Culp, 2002). It would thus, be wise for companies to use the well-known cryptocurrencies that are dominant in the market. Such is Bitcoin, which is the most valuable cryptocurrency, and Ethereum, the second valuable crypto(Härdle, Harvey & Reule, 2019). With the usage of both cryptocurrencies, businesses can attract a wide range of customers and also help in boosting the company’s popularity(Klier, 2009). Such improvements will lead to increased customer transformation. Another recommended cryptocurrency for companies is Dagcoin for its distinct features and functions. The coin is still cruising to the top of the market with positive progress every year due to its unique features, which get interpreted as innovative ideas(Härdle, Harvey & Reule, 2019). The coin can immensely cause mitigation of the portfolio risk since it involves a variety of services such as Dagpay, Dagtelecom, Dagchain, all of which are unique services that are not available with the other cryptocurrencies.

In conclusion, cryptocurrencies are potentially the future of money. The essay exhibits the need to accommodate cryptocurrency usage by spelling out the benefits associated with it. Cryptocurrencies have the perfect ability to mitigate portfolio risks and increase return on investments due to their high volatility and ever-increasing value. By so doing, there will be increased customer transformation and mitigation of the portfolio risks. People are interested in cryptocurrencies since they are the electronic form of money that is effective in payments and other personal transactions. The market has the task of convincing customers of their quality services and attracting new customers through innovations and accomplishments. The cryptocurrency market has thus accomplished its targets by bringing new innovative ideas in the market to set the pace for the competitors and stand out in uniquenes

References

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Culp, C. (2002). Contingent Capital: Integrating Corporate Financing and Risk Management Decisions. Journal of Applied Corporate Finance, 15(1), 46-56. doi: 10.1111/j.1745-6622.2002.tb00340.x

Gao, W., & Hong, K. (2017). The Portfolio Balanced Risk Index Model and Analysis of Examples of Large-Scale Infrastructure Project. Complexity, 2017, 1-13. doi: 10.1155/2017/5174613

Härdle, W., Harvey, C., & Reule, R. (2019). Understanding Cryptocurrencies. Retrieved 26 February 2020, fromhttp://dx.doi.org/10.2139/ssrn.3360304

Howard, C. T. (2014). Behavioral portfolio management: How successful investors master their emotions and build superior portfolios. ISBN: 9780857193254

Inci, A., & Lagasse, R. (2019). Cryptocurrencies: applications and investment opportunities. Journal of Capital Markets Studies, 3(2), 98-112. doi: 10.1108/jcms-05-2019-0032

Klier, D. O. (2009). Managing diversified portfolios: What multi-business firms can learn from private equity. Heidelberg: Physica-Verlag. ISBN: 9783790821734

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Impact of Cryptocurrency on Portfolio Risk Mitigation