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ISSN 2067-3310, E-ISSN 2067-7669 

Vol. 17, No. 2 (2023), pp. 10-16 

 

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INVESTING IN CRYPTOCURRENCY AS AN ALTERNATIVE WAY OF 

FINANCIAL INVESTMENTS 

 

N. ASHURBAYLI – HUSEYNOVA, A. YUSIFOV 

 

Nigar Ashurbayli – Huseynova1, Ali Yusifov2 

Azerbaijan State University of Economics (UNEC), Azerbaijan  
1 https://orcid.org/0000-0002-2641-7520, E-mail: nigar.ashurbeyli-huseynova@unec.edu.az  
2 https://orcid.org/0009-0002-9251-4801, E-mail: ali.yusifov.1945@gmail.com  

  

Abstract: In the realm of finance, cryptocurrency has emerged as a captivating alternative 

to traditional investment avenues, such as stocks, bonds, and real estate. Its decentralized nature, 

unfettered by government or financial institution control, presents a unique proposition in the 

world of wealth management. The allure of cryptocurrency lies in its potential for substantial 

returns. Its value has experienced remarkable growth in recent years, offering investors the 

prospect of significant financial gains. Additionally, cryptocurrency serves as a valuable tool for 

portfolio diversification, as its performance is often uncorrelated with traditional asset classes. 

Moreover, cryptocurrency boasts portability and accessibility, making it a convenient and 

inclusive investment option. Its digital nature allows for seamless storage and transferability, 

while its global reach enables anyone with an internet connection to participate in the 

cryptocurrency ecosystem. However, alongside these potential benefits, cryptocurrency also 

harbors inherent risks. Its volatility poses a challenge, as its value can fluctuate dramatically in a 

short period. Regulatory uncertainty looms, as governments worldwide grapple with the 

implications of cryptocurrency and may impose restrictive measures. Furthermore, security 

concerns persist, as cryptocurrency exchanges and wallets have fallen prey to cyberattacks, 

jeopardizing investors' assets. In light of these considerations, investing in cryptocurrency 

demands a thoughtful approach. Investors must carefully assess their risk tolerance and align their 

investment goals with the inherent risks associated with cryptocurrency. Thorough research and 

a well-diversified portfolio are crucial for navigating the complexities of this emerging asset class. 

The purpose of the article is to analyze the profitability and safety of investments in cryptocurrency 

and study the different methods associated with it 

Keywords: dividend policy, crisis, cryptocurrency, FEC. 

 

INTRODUCTION 

This article summarizes information and conducts a comparative analysis of the advantages 

and disadvantages of investing in cryptocurrency instruments on the corresponding platforms in 

the conditions of existence of classical financial markets and increasing global risks in all areas of 

activity and investment activities and investments. The work applies the tools and methods of 

comparative analysis, as well as the methods of deduction, induction, classification and 

systematization. The work is useful for determining the peculiarities of realization of investments 

in cryptocurrency as an alternative channel of investment of companies and individuals in 

conditions of increasing variability of conditions of functioning and within the framework of all 

existing instruments of financial investments. In the conditions of rapidly changing 

macroeconomic and microeconomic conjuncture, accompanied by often large-scale structural and 

technological changes, crypto-instruments are becoming increasingly relevant and the 

cryptocurrency market is increasingly developing. The prerequisite for the rapid development of 

https://orcid.org/0000-0002-2641-7520
mailto:nigar.ashurbeyli-huseynova@unec.edu.az
https://orcid.org/0009-0002-9251-4801
mailto:ali.yusifov.1945@gmail.com


Nigar ASHURBAYLI – HUSEYNOVA, Ali YUSIFOV 
 

11 
 

the crypto-instruments market is the growing interest of Individuals and business both from the 

position of a settlement and payment instrument, and from the position of potential investment 

investments. Within the framework of this article it is the investment potential of cryptocurrency 

and other crypto-instruments is of scientific interest, because these quasi-financial instruments can 

be used both for long-term and medium-term investment strategies, and for short-term investment 

strategies, as well as for short-term trading speculation.  

 

RESEARCH METHODOLOGY 

Blockchain technology has become widespread in the world because of its unique features. 

These features are being actively utilized by various organizations and even some central banks 

(Heideman, M., Johnson, D., Burrus, C., 1984) Initially, it is necessary to give a definition of 

Cryptocurrency. Cryptocurrency, according to many modern analysts and on the actual realization 

of its economic functions is a special form of money, for the issuance of the which requires 

minimal expenditure of physical material, but requires computational power. Cryptocurrencies are 

issued in the form of digital tokens that can be used for commodity exchange transactions with 

individuals or legal entities (Härdle, W.K., Trimborn, S., 2015. Masters, B., 2023) The investment 

potential of cryptocurrencies is formed at the moment of its exchange for official currencies or 

other values. Currently, in the world practice it is customary to compare the value of other currency 

or commodity, immovable value, converting into reserve world currencies, which are accepted for 

payment and convertible in most countries of the world: it is the dollar, euro, Chinese yuan and 

others (Masters, B., 2023). 

In this case, the essence of investment in cryptocurrency is similar to the purchase of 

reserve or foreign currency, different from the currency of the investor's country. Because in the 

modern world macroeconomic processes are accelerated, and the topics of development and 

growth of various countries, expressed in terms of gross domestic product, differ from each other, 

the value of each country's currency of each country's currency in relation to the major reserve 

currencies and in relation to the currencies of other countries (Nasekin, S., Chen, C., 2020). 

Thus, by exchanging a national currency for a reserve currency, a person can build up 

investment financial capital, which, as the changes in cross rates, inflationary dynamics, economic 

growth dynamics and many other factors may change, because under the influence of these factors 

the ratio of currencies operated by the investor will also change. For example, when buying U.S. 

dollars for Turkish Lira in 2021 and selling back US dollars in 2023, the amount of cash 

denominated in Turkish Lira will be higher. Based on this we obtain the investment function of 

currencies at its convertibility (Petukhina, A.A., Reule, R.C.G., Härdle, W.K., 2021). 

Cryptocurrencies have similar properties, which have a certain volatility of exchange rates and are 

subject to fluctuations over time. At the same time, given that the amount of computing power in 

the world is limited, uncontrolled emission of this currency becomes extremely difficult, and 

therefore the full-fledged acquisition of investment properties of this asset acquires already and 

may be comparable, according to the estimation of some analysts, with monetary gold for these 

purposes. Anyway, at the moment there are certain difficulties in investing in cryptocurrency. 

These difficulties consist of significant risks, as pointed out by public authorities, which in addition 

fear not only the volatility of cryptocurrencies, but also the uncontrolled issuance, use and cross-

border movement of cryptocurrencies movement. Currently, many cryptocurrencies are available 

for purchase (Fig. 1), including bitcoin, Ethereum and others. 

 



INVESTING IN CRYPTOCURRENCY AS AN ALTERNATIVE WAY OF FINANCIAL 

INVESTMENTS 

 

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Figure 1. Top 5 cryptocurrencies by market capitalization 

 
Source: https://coinmarketcap.com  

 

Unlike standard financial instruments, to make a transaction using cryptocurrency, you 

need to register with special software and open a digital wallet, which today can be obtained at a 

specially organized crypto exchange. At the same time, each investor has a unique identifier, which 

is used to record transfer of ownership within the framework of blockchain technology and for the 

operation of the exchange's personal cabinet. Analysts and experts highlight a number of 

advantages and disadvantages of using cryptocurrency as an investment asset. Firstly, it is a high 

yield potential instrument. Perhaps, the main argument of many traders and analysts in favour of 

using cryptocurrencies as a financial asset. cryptocurrencies as a financial investment asset 

compared to investments in the classical currency market or, for example, compared to the stock 

market, is the possibility of a high yield high returns. 

For example, over the five-year period to 2020, the S&P 500 index of shares of American 

companies with the largest capitalization grew at a rate of about 14% per year, while the bitcoin 

price over the same period, expressed in dollars, grew at a rate of about 14% per year. The same 

period, expressed in US dollars, grew at over 130% per year (some of the movement is 

demonstrated in Figure 2). 

 

Figure 2. Comparison of the movements of the S&P 500 index, gold prices and Bitcoin (BTC) 

 
Source: compiled by the author according to Bitmex.com and Bloomberg 

https://coinmarketcap.com/


Nigar ASHURBAYLI – HUSEYNOVA, Ali YUSIFOV 
 

13 
 

The second argument in favour of cryptocurrencies for investment is the opportunity for 

potential diversification. As mentioned above, many traders and analysts compare cryptocurrency 

to gold (Trimborn, S., Härdle, W.K., 2018.) The comparison is usually made in the context of 

being able to hedge a portfolio against macroeconomic downturns, as in this case instruments 

behave in a multidirectional manner, so, for example, in the second half of 2021. There was a fall 

in the S&P 500 index and a simultaneous rise in the value of bitcoin. A portfolio with 10 per cent 

invested in bitcoin and 90 per cent in the S&P 500 would have delivered a compound annualized 

return of 26.8%. The third argument is the limited supply of this instrument. Returning to bitcoin, 

which we use to analyse as a representative sample of the underlying cryptocurrency market, 

according to current estimates, there is the possibility of issuing a maximum of 21 million coins, 

of which more than 18 have already been created (Table 1).  This feature makes it possible to 

predict the number of bitcoins in circulation over time, given the possibility of them. The number 

of bitcoins in circulation in dynamics, taking into account the possibility of them. 

This feature makes it possible to forecast the number of bitcoins in circulation in dynamics, 

taking into account the possibility of their issuance, on the basis of which, in conjunction with 

several other factors, it is possible to predict the future dynamics of this instrument. Logically, that 

as the mining limit is approached, the value of one bitcoin traded on the market will rise, contrary 

to the general rule of money, which reflects a fall in the value of a monetary unit when the mining 

limit is approached. An increase in their quantity without a commensurate increase of its collateral. 

In this sense, an analogy can also be made with gold, the extraction of which is also limited and 

becomes more difficult over time. 

 

Table 1. Dynamics of the number of bitcoins in circulation as of 31 December of each of the years 

from 2016 to 2021 

2016 15,016 

2017 16,079 

2018 16,808 

2019 17,483 

2020 18,163 

2021 18,595 

Source: compiled by the author based on Bloomberg data 

 

In addition to the advantages of diversification and hedging inflation risks, there are several 

disadvantages and risks associated with cryptocurrencies. High volatility is one major concern, as 

the prices of cryptocurrencies can fluctuate significantly within short periods of time. (Huang, X., 

Zhang, W., Tang, X., Zhang, M., Surbiryala, J., Iosifidis, V., Liu, Z., Zhang, J.,2021)  

For example, the annual percentage volatility of bitcoin and Ethereum can be as high as 

85%, making them highly unpredictable and risky for short-term trading. Furthermore, the 

correlation of cryptocurrencies with other financial assets, such as stocks included in the S&P 500 

index, limits their effectiveness as a means of absolute hedging of stock market risks. While 

correlation may not be noticeable in the long term, it can appear at certain timeframes, reducing 

the potential benefits of diversification. Another drawback of cryptocurrencies is their constantly 

growing number. While there are technological limitations on the issuance of new bitcoins or other 

cryptocurrencies, there are no restrictions on the launch of new cryptocurrencies. This unlimited 

supply potential can lead to shifts in popularity, potentially causing a decline in the value and 

popularity of existing cryptocurrencies like bitcoin. Limited acceptance and recognition is another 



INVESTING IN CRYPTOCURRENCY AS AN ALTERNATIVE WAY OF FINANCIAL 

INVESTMENTS 

 

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drawback of cryptocurrencies. While bitcoin has gained widespread popularity and recognition, 

most cryptocurrencies are not recognized as a means of payment or financial investment 

instruments by central banks. Only a few exceptions exist, and it is challenging to use 

cryptocurrencies for everyday transactions or in the traditional commodity circulation. (Cortez, 

K., Rodríguez-García, M.d.P., Mongrut, S., 2021.)  The lack of acceptance and recognition is often 

due to the volatility, uncontrollability, and unregulated nature of cryptocurrencies. The lack of 

regulation also makes cryptocurrencies susceptible to criminal activities and fraudulent 

manipulation. The unregulated and unsecured nature of cryptocurrencies attracts individuals 

involved in illegal activities. Studies have indicated that a significant portion of bitcoin users and 

transactions are linked to illegal activities. Overall, while cryptocurrencies offer some advantages, 

such as diversification and potential protection against inflation, they also come with high 

volatility, limited acceptance, and increased risks of illegal activities. These drawbacks should be 

carefully considered before investing in cryptocurrencies. 

The decision by El Salvador to recognize Bitcoin as legal tender has brought significant 

attention to the use of cryptocurrencies in the financial world. While other countries like the United 

States, Canada, and EU countries have not fully embraced cryptocurrencies as legal tender, they 

are open to limited use cases and exploring their potential. Cryptocurrencies are gaining relevance 

in developing countries where access to traditional financial services may be limited. They provide 

a way for individuals and businesses to overcome barriers and engage in financial transactions. 

The decentralized nature of cryptocurrencies also offers greater financial inclusivity and empowers 

individuals with control over their own finances. The increasing interest in using cryptocurrencies 

by legal entities and individuals can be attributed to several factors. Firstly, cryptocurrencies 

provide opportunities for income generation. With the volatile nature of these digital assets, there 

is potential to make substantial profits through trading or investing. Secondly, cryptocurrencies 

offer a means of risk hedging. In uncertain economic environments, some individuals and 

businesses seek alternatives to traditional assets like stocks, bonds, or fiat currencies. 

Cryptocurrencies provide an additional avenue for diversifying investment portfolios and 

mitigating risk. Lastly, the growing popularity of cryptocurrencies is fueled by the desire for 

portfolio diversification. (Saleh, Fahad 2020.)  Many investors are looking for ways to diversify 

their holdings beyond traditional assets. Cryptocurrencies offer an alternative asset class that 

operates independently of traditional financial markets, allowing investors to spread their risk 

across various sectors. Overall, the attractiveness of using cryptocurrencies for investing funds lies 

in the potential for income generation, risk hedging, and portfolio diversification. While different 

countries have varying levels of acceptance and regulation around cryptocurrencies, the global 

interest in these digital assets continues to grow. 

 

Table 2. The main advantages and disadvantages of investing in cryptocurrency  

advantages shortcomings 

high profitability high volatility, high potential losses 

diversification positive correlation with equities and gold 

limited number of objects in some cryptosystems low retention of value, poorly regulated in terms of 

legislation 

protection against currency depreciation and inflation low retention of value 

growing acceptance and usage susceptible to hacker attacks 

Source: compiled by the author 



Nigar ASHURBAYLI – HUSEYNOVA, Ali YUSIFOV 
 

15 
 

 DISCUSSION 

 In summary, cryptocurrencies are considered a non-traditional investment option at the 

moment. Access to the relevant infrastructure is difficult to restrict, making it an alternative 

investment channel. However, investors should carefully consider the advantages and 

disadvantages discussed in this article, assess the degree of risk, and define their goals before 

investing in cryptocurrencies. Cryptocurrencies are seen as a high-yield and high-risk investment 

that often falls short of expectations. It is not recommended for inexperienced investors to enter 

the cryptocurrency market with substantial financial resources. The decision to include 

cryptocurrencies in a portfolio should be based on an individual assessment of the balance between 

advantages and disadvantages. (Cong, Lin William, Zhiguo He, and Jiasun Li 2020.) 

Key Findings and Implications 

1. Potential for Diversification and High Returns:  Research suggests that cryptocurrency 

has historically exhibited low to negative correlations with traditional asset classes, such as stocks 

and bonds. This potentially makes it a valuable tool for portfolio diversification. However, it's 

crucial to note that past performance is not indicative of future results. 

2. Increased Adoption and Institutional Interest: Growing adoption by individuals, 

businesses, and financial institutions is adding legitimacy to the cryptocurrency market. 

Institutional investors are increasingly allocating funds to cryptocurrency, indicating a potential 

shift in mainstream acceptance. 

3. Regulatory Uncertainty and Challenges: The lack of clear and consistent global 

regulations surrounding cryptocurrency poses challenges for investors and businesses. Regulatory 

developments can significantly impact cryptocurrency prices and adoption rates. 

4. Technological Advancements and Security Concerns: Ongoing advancements in 

blockchain technology, such as scalability and privacy solutions, could enhance the use cases and 

appeal of cryptocurrency. However, security breaches and hacks remain a concern for investors 

and developers. 

5. Volatility and Risk Management: 

The inherent volatility of cryptocurrency prices underscores the importance of risk 

management strategies, such as: Diversification across multiple cryptocurrencies and asset classes, 

setting appropriate investment goals and risk tolerance levels, employing stop-loss orders to limit 

potential losses 

Future Research Directions: Exploration of factors influencing cryptocurrency price 

volatility and its correlation with traditional asset classes. Evaluation of the impact of regulation 

on cryptocurrency adoption and market dynamics. Development of robust risk management 

frameworks for cryptocurrency investing. Assessment of the potential for cryptocurrency to 

disrupt traditional financial systems. Examination of the ethical and social implications of 

cryptocurrency adoption. 

 

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