Investing in Organised Chaos
Cryptocurrency has made it back onto the front pages. But how do we avoid the traps seen in the past and invest smarter into the future of money?
Cryptocurrency: investor traps and tips
Two years ago, cryptocurrency was the fastest growing asset class. However, by the end of 2018 many had completely written it off. And yet when 2019 came around, cryptocurrency began to rebound. It is evident that the cryptocurrency industry isn’t going away. Branded as the future of money, cryptocurrency has always promised to change the world by bringing finance to the unbanked and freeing everyone from depending on centralised parties such as governments and banks to electronically send money to each other.
The year 2019 has shown that this promise is gradually taking root. Cryptocurrency’s innate value as a revolutionary financial tool is also being proven as institutions such as Facebook, ICE, Fidelity, Nomura, JP Morgan and many others have all joined the cryptocurrency space.
However, despite the positive progress, investments in cryptocurrency still carry a set of high risks. The price volatility outlined in the infographic (below) is not uncommon, and the execution of investing in cryptocurrencies is mired in cybersecurity complexities and pitfalls.
Fortunately, as the industry matures, more legitimate counterparties—companies that facilitate transactions—and riskmanagement investment tools will become available. We now have many choices in cryptocurrency
exchanges/ brokers and custodial solutions— which means that we can lower cybersecurity risks by diversifying the investments across exchanges, use proper custodial services that come with insurance coverage, and pick counterparties that are properly licensed or regulated.
Now we can also hedge against volatile price movements by trading cryptocurrency derivatives and futures. Additionally, advisory services that deploy quantitative financial investment strategies or advanced artificial intelligence algorithms into the cryptocurrency market are already available.
Finally, it has become fundamentally important that institutionalised drawdown limiting measures are put in place to actively manage the large market swings. Passive strategies such as HODL—AN abbreviation for “hold on for dear life” and an informal term for a buy-and-hold strategy that is specific to cryptocurrency trading—are no longer sufficient for investors to profit from the cryptocurrency market.
Thus, hands-off cryptocurrency investors may want to go with officially licensed investment fund managers, such as Maicapital, which completely institutionalise their operations to invest in the growth of cryptocurrency assets.
Cryptocurrency is becoming a mainstream asset class that should be in every balanced portfolio. With the right tools, one can capture growth in the cryptocurrency market that can easily outperform any type of equity and debt investments out there.