Should I Invest in Cryptocurrencies?

It seems like it is impossible to pick up a newspaper or read articles online without some reference to cryptocurrencies. It started with Bitcoin, but now others are regularly making the headlines, including Ethereum and Dogecoin, and it is not only because Elon Musk frequently gives them a plug. Of course, people worldwide have made very impressive returns from investing in crypto, you may even be one yourself, or perhaps you are still nervous and not sure whether to include it as part of your portfolio.

Is investing in cryptocurrencies a risk?

The simple answer is yes; investing in crypto is quite risky. Still, if you already have a diverse portfolio, there is no actual harm in putting a small percentage of your wealth in cryptocurrencies. However, like any investment that offers potential high gains, there are also plenty of risks involved, so the amount you invest should be an amount you can afford to lose. See your investment as “play money”, just as you would in a casino if you were gambling on blackjack or roulette.

Is there any way of mitigating the risk?

There are limits to how much you can practically reduce the risk with crypto assets, but we would always suggest putting them within a bond wrapper as a professional brokerage, maybe even buying a basket of Crypto assets in an ETP (Exchange Traded Product). Although this won’t protect your assets from market losses, it may save you from other factors, such as the company you purchase the assets from going into liquidation. However, as this is a speculative investment, we will only manage your crypto on your behalf without offering advice.

If purchasing cryptocurrencies still seem laden with risk, you could consider companies that facilitate the asset in its use. Effectively, this would mean that you are investing indirectly in this asset class, and as such, you would have greater protection. However, naturally, this would mean you wouldn’t make the same potential gains as investing in it directly. (Companies such as Paypal & Square, to name a couple)

Regulations

In many regards, cryptocurrencies are unregulated, making them attractive on the one hand while open to abuse on the other. As a result, regulated countries such as the US, the UK and most countries in the EC are now scrutinising transactions more carefully. Sadly, several fraudulent companies are being established to take advantage of the popularity of the asset. It is, therefore, essential that you only purchase these types of assets from a regulated and reputable organisation.

Greater diversification

For decades, Investment advisers have been telling investors to diversify their portfolios as much as possible. In general, this means investing in assets with no correlation to Equities or the stock market. Assets that have typically performed well during a bear market, such as gold, are one such example. However, with their outperformance over the last year, Cryptocurrencies are another example of how this asset does not correlate.

The crucial point to remember is that it should be viewed as a long-term investment and that volatility, as we have seen in recent months, is to be expected. So if you are looking at this as a get rich quick scheme, or because your friends are doing it, you should consider if it is right for you, as things can go wrong very quickly.

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If you would like to know more about cryptocurrencies and would like some of your questions answering, then talk to us.

 

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