Opinion
What’s the go with crypto: Is Bitcoin still a good investment?
Dominic Powell
Money EditorReal Money, a free weekly newsletter giving expert tips on how to save, invest and make the most of your money, is sent every Sunday. You’re reading an excerpt − sign up to get the whole newsletter in your inbox.
Around the start of 2017 as a bright-eyed, [AGE REDACTED]-year-old, I remember stumbling onto an article discussing a then relatively new cryptocurrency called Ethereum. The article made a bunch of claims about how it and various other digital currencies were going to revolutionise the internet and entirely change the way we interact, transact and work online, which sounded pretty cool at the time.
Investing in the cryptocurrency space can be daunting.Credit: Michael Howard
Anyway, obviously none of that happened and almost certainly never will (despite constant assurances from crypto fanatics), but what did happen since 2017 is the price of Ethereum went from $20 to about $4500. Similarly, the price of Bitcoin, the most well-known cryptocurrency, jumped from being worth about $2000 to $85,000 today, great news for anyone who got in when it was cheap. For a detailed description of what cryptocurrency is, check out this Explainer I wrote a while back.
Fast-forward to today, and the launch of new crypto products, such as Australia’s first exchange-traded fund with Bitcoin as its underlying asset, tends to come with far less hype than say the heady days of non-fungible tokens and Dogecoin. And the major cryptocurrencies (Ethereum, Bitcoin), although still volatile, tend not to experience the same wild price swings of even a couple of years ago − even if there’s still a bunch of smaller, useless “meme coins� operating effectively as pump and dump schemes trying to entice unfortunate investors.
What’s the problem?
For genuine investors who are interested in the crypto space but know little about it, the confusing and unregulated industry can pose a daunting barrier to entry. It’s also clear that the heady early days when investors could 100x their money are, largely, over.
The recent launch of Bitcoin exchange-traded funds (ETFs) in the US and in Australia, which track the price of the digital currency, has meant it has increasingly started to act like a “normal� asset, if not a good deal more volatile. However, this also means crypto is much more accessible, making it much easier for an everyday investor to purchase.
What you can do about it
If you’re wondering if it’s worth spending your time (and money) on crypto, and if it’s still a worthwhile investment, read on:
- Know the cycles: As someone who’s been following the crypto space for some time, crypto investors are always looking for the next development or piece of news that they hope will send the price soaring. For example, the announcement on Bitcoin ETFs earlier this year was the catalyst for a run that saw its price increase by over 80 per cent. Other events, such as changes to the algorithm that underpins the technology, can also herald major price fluctuations. If you’re looking to get relatively deep into crypto as an investment, it’s important to know about these events, as they can cause big price swings. Keep an eye on our business pages and the Australian Financial Review for news on major developments in the crypto space
- Don’t get caught up in the hype: Like any high-risk, high-reward investment, but especially with crypto, it’s important to not get sucked in to the seemingly never-ending hype train. No, Bitcoin or any other cryptocurrency is never going to replace standard currency, and no, blockchain technology is extremely unlikely to be the future of computing. Crypto proponents will push these lines along with a raft of other highly suspect claims, so keeping your head in this space is essential. “Cryptocurrency investments might look like the shiny new toy, but it’s important not to get caught up in the hype and FOMO,� says Grace Bacon, director of financial services at RSM Australia. “When making any investment decision, it’s essential to take a considered approach and assess your risk appetite, goals and objectives, timeframes and access to the capital before investing.�
- Don’t expect it to go “to the moon�: If you’re familiar with crypto lingo, you may have heard the phrase “to the moon�, a sort of catch cry to rally investors around a currency and send its price skyrocketing. While insane price spikes still do occur in smaller, generally low-quality cryptocurrencies, it’s highly unlikely the price of something like Bitcoin will double at this point, at least not in the short-to-medium term. And while you may see gains of 25 per cent, you’ll also see falls of the same amount, so be prepared for that if you do decide to take the plunge.
- Be measured, and be careful: This advice is relevant to any form of investing, but it’s especially pertinent when it comes to crypto. Justin Arzadon, head of digital assets at ETF provider Betashares, says investors should not get ahead of themselves when it comes to allocations to cryptocurrencies, whether they opt for an ETF or otherwise. “Digital assets remain highly volatile and as a result should only form a very small part of an overall portfolio,� he says. Arzadon says investors should first be looking at Australian and international equities, bonds, and then, depending on your circumstances “a small allocation� to digital assets.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.