We recommend as financial advisers say that despite the temptation, the market and regulatory risks are too great. It’s a question that financial advisers increasingly hear these days. With bitcoin up more than fourfold this year and a series of high-profile “initial coin offerings” raising more than €1.7 billion in total. There are a number of investors interested in digital currencies has been picking up.
Yet, we as advisers, for the most part, don’t recommend investing in digital currency or in the few investments vehicles that have cropped up. There are a number of market and regulatory risks inherent in trading cryptocurrencies. Bitcoin and similar digital currencies may offer an investment opportunity in the future, but for now, they remain speculative bets that investors should be wary of or avoid altogether. Without being pessimistic about a Bitcoin Bubble. Speculations may appreciate or depreciate over the short term and at times dramatically. People get excited from big price movements. It’s absolutely normal to do, who doesn’t want to make a quick buck. For our own part, we have regulated entity and some of the appreciation in the exchange value of Bitcoins to real currencies are possibly due to demand from people who want to or need to transact outside of established markets. We have no interest in supporting this function. That’s great so you know we are ethical toward our investment strategies and practices, but dilemma we face as advisors. “Bitcoin to invest or not to invest that is the real question”
Whilst we recognise the potential upside is alluring, the significant risk of loss is incompatible with prudent investing for long-term goals like college savings, buying a home or retirement. There are much more diversified products that are placed in less volatile markets.
It’s Vegas baby
Recently we had a 48-year-old client come to us with a plan to liquidate a majority of her retirement savings and invest the proceeds, after taxes and penalties, in bitcoin. It is hard to face a client and tell them not to invest in bitcoin considering it has grown so much. But rather than sitting on the fence I wanted to stay true to my thoughts and considerations around investing in cryptocurrencies. For me, it’s like Vegas, if you’re prepared to gamble with your money in such a volatile market by all means do, just heed warning of its turbulence. And only bet what you can afford to lose. You might win and take home a prize, he says, but if things go belly up, at least you only lost discretionary funds.
Risking anything above a trivial amount in cryptocurrencies isn’t advisable. Anyone contemplating such a move should be debt-free; have an appropriate amount of rainy day fund savings; be on track with financial goals such as retirement or college savings, and have a healthy cash flow.
Right so, now that you know my two cents on Bitcoin in today’s marketplace, let me put a hypothetical situation in front of you.
A wealthy person wants to gift you €10,000. You get to choose in which form you’ll take the gift. But there’s a catch: You must keep the gift in the form that you choose, and you can’t touch it for 5 years.
In which form would you take the gift?
(C) AIB/ Bank of Ireland
(D) Gold Bars
(E) A Share of Dublin City Centre Apartment
Let me know what you think in the comments section below.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position on cryptocurrencies.