My stance on cryptocurrencies
I start this piece by saying I am neither pro or against investing in cryptocurrencies. However as an investment advisor I certainly do have a view. Cryptocurrencies fall into the unregulated (murkier) side of Investing and a lot of investment managers are fearful of giving their views. Personally I feel it would be foolhardy of me not to have knowledge in this space, especially as it is so topical. Those that don’t as Darwin described will find themselves extinct.
Risk & Reward
Having witnessed first-hand the meteoric rise in the value of a lot of the main cryptocurrencies since the latter half of 2019 to the fall of around 15%-20% at the start of December this year, it reinforced one principle I firmly believe in. That is that risk and reward are correlated. A lot has been written about why cryptocurrencies have risen so much in value. The main issue I personally have in this area is that it is really hard to explain why it moves in price. As a trained economist, I like to understand what causes the price of assets to change.
Simple demand and supply goes out of the window here. In the case of cryptocurrencies it is virtually impossible with the world so complex. Whether it is a “tweet” from Elon Musk or armchair investors driving the price up due to boredom at home, the reality is that cryptocurrencies are being integrated in the ever evolving world we live in. I feel my role is to explain the risks but also give guidance on how to access these “safely”.
My holdings
I hold a small amount, in my company and also my pension. Initially, I did this really as an education and to understand how the process works. I have tried to diversify my approach as best I could. Like any good Investment manager limit my exposure to this asset class proportionately to my overall holdings. The best advice I can give anyone reading this is as follows. Don’t invest because of FOMO (fear of missing out). Invest because you believe in something and educate yourself
Crypto stories
I have heard the stories of people buying houses with the gains from crypto’s but I can also share some stories of those that lost significant amounts of money including a well-established business or were conned in a scam. I have made and lost money in this space in the last four years. ut the key for me is that I invested what I could afford to lose. That is the overwhelming takeaway from this piece I want to get across.
From the eyes of a financial advisor
Having people ask me on a daily basis about how to invest and what to invest in, I go back to the fundamentals of investing. Risk runs on a scale of 1-7, with 1 being cash deposits and 7 shares in specific single companies. I would argue they should make an “8” category for cryptocurrencies.
What platform should I use?
If I haven’t completely put you off yes and you still want to invest, I would suggest using Coinbase. (the most established and recognised of the exchanges out there). They are relatively inexpensive and provide good visibility and give access to all the main coins out there. For those who have pensions from previous employments or run a business you can use a Pension to get exposure through listed exchanges of the likes of 21shares for example.
What I like about having exposure in a pension is that any gains are tax free. Whereas personal investors are liable to capital gains tax on profits. A lot of people refer to Bitcoin as it is the “Daddy” and it some sense it is a good coin to start with. Bitcoin will generally display less volatile characteristics then some of the other coins. I do find younger investors are more in tune with this.
Volatility in cryptocurrencies
There is a school of thought that cryptocurrencies like stock markets must fall and of course they will eventually be proven to be correct. The thing is no one knows is when that will be. Interestingly I attended a recent investment webinar from experts saying both can continue to rise because the world has evolved due to technological advances. The statistic they used Is that instead of people being connected the world will be driven by devices and it is frightening how this will improve the way we operate. Tesla cars for example are an example of a device from the self-drive to the iPad in the car. Data is the new “gold” and technology will continue to drive companies and Economies into the future. Whether the same can be said of Cryptocurrencies remains to be seen.”
These views are those of Nick Charalambous, Managing Director or Alpha Wealth, an independent Financial Advisory company.
