The internet has spawned many ‘things’ since its invention – for better or for worse. While cryptocurrencies have garnered a lot of attention in the past few years, “crypto” as it is often referred, was actually first conceived back in 2009.
You have probably heard of Bitcoin. If someone had invested $1000 in Bitcoin back in 2010, they would be sitting on a tidy sum of around $80mn, as of February 2021. Headlines of this sort are quick to grab our attention, but we would advise you to consider and assess the facts before investing into Bitcoin or any other such cryptocurrency.
While we have all no doubt experienced crypto ‘FOMO’ (fear of missing out) in recent months, we would advise extreme caution when approaching the world of cryptocurrency.
What is cryptocurrency?
Cryptocurrency is a form of digital currency that uses cryptography to secure online transactions. The most well-known is Bitcoin, but there are many others out there such as Ethereum, Tether, and more recently (and to the amusement of many) ‘Dogecoin’.
To purchase and hold crypto, a user must have a digital ‘wallet’; an online app that allows them to store and spend their crypto. There are a growing number of online brokers that offer both a wallet and the platform to exchange cryptocurrency, though many are relatively new and have not been tested during periods of extreme market stress.
Owners of crypto can exchange their currency for goods and services online via secure purchases supported by blockchain technology (which is used to power a decentralized digital ledger that ensures transactions and wallets are secure and anonymous).
Depending on who you speak to or what you read, cryptocurrencies are either a celebrated tool that will free the world of capitalist tyranny, or a volatile, Faustian evil to be avoided at all costs. At Cave & Sons, we are not sold on the merit of cryptocurrencies as an investment asset class for client portfolios.
The Risks of Investing in Cryptocurrency
Investments always carry an element of risk, but in the case of crypto, we believe that at present the risks outweigh the benefits for the following reasons:
- Comparing the sharp rises and falls of cryptocurrencies over the last decade to a rollercoaster ride would be an understatement. The volatile nature of crypto makes it incredibly difficult for investors to have confidence when making any significant investment.
- There is an overwhelming amount of evidence to suggest that exchanges, traders and even media personalities can manipulate the price of crypto.
- Despite its incredible popularity, crypto is still unregulated. Although now beginning to attract some genuine attention from governments and banks, there is still a lot of uncertainty about future regulations and the repercussions these might have on the future value of cryptocurrencies.
- Although blockchain technology makes it extremely difficult to hack digital wallets, transactions can still be manipulated if the data is not stored properly.
- There is currently nothing in place to prevent cryptocurrencies from being banned or effectively regulated out of existence in the future.
Due to the overall unpredictability of cryptocurrencies in their present form, we cannot justify their consideration in an investment portfolio. Given that they are also an unregulated asset class, we are not able to provide advice regarding them (even if we wanted to!)
Cave & Sons
If you would like to discuss the practicality of crypto investment, or would like to diversify your investment portfolio through more conventional means, get in touch with us today. You can request a callback via or online contact form, or call on 01604 621 421 to book an appointment.