Cryptocurrency
If anything is a potential bargain right now, it’s cryptocurrency. But does that make digital currencies like Bitcoin and Ethereum a good buy – or could it be a case of saying goodbye to your money, as has been the experience of many investors in recent months?
The MVIS CryptoCompare Digital Assets 10 Index, which tracks the performance of the 10 largest cryptos, is down 43% over the past year. Bitcoin, for example, is trading for $33,000, down from its former high of $90,000 in November 2021. Ethereum, which hit a high of $6500 last year, can now be picked up for about $2300.
Despite the rollercoaster ride of crypto, research by the consumer group Choice confirms digital currencies remain popular. “Our data shows that almost one in five Australians is either involved or interested in crypto trading,” says Patrick Veyret, senior policy adviser at Choice.
He adds that two in five people who are interested in cryptocurrency are not investing due to the risk of scams. It’s a fair call.
Delia Rickard, deputy chair of the ACCC, the consumer watchdog, says the popularity of crypto and associated hype has led to a surge in losses to investment scams (see “Beware if it sounds too good to be true”, page 39).
The main way to invest directly in crypto is through a cryptocurrency exchange. But there are other ways to get into the market. For example, the online broking platform SelfWealth plans to offer direct investment and ownership in five popular cryptocurrencies, including Bitcoin, Ethereum and Ripple.
Not everyone is convinced about crypto, though. “There will be parts of the crypto market that do really well over time,” says McShane. “However, investors need to consider how much they can afford to lose – or be prepared to wait years to see who the winners will be and who will be the losers.
“If the US Federal Reserve begins to issue digital currencies, for instance, Bitcoin and Ethereum may not stand a chance because of the scale of the Fed and the added security of central bank backing.”
McShane believes that there is too much uncertainty in the crypto market to make a clear call. “Until that fog clears, the risk of crypto is too extreme for the average investor,” he says. “For investors keen on putting money into crypto, it should be a very small proportion of your portfolio, possibly 2% or less, which you can afford to lose. Even then, it makes sense to diversify across crypto possibly through an ETF or managed fund.”