Bitcoin has ‘upside’ but still considered a ‘risky investment’

The survey found one-in-three crypto investors made their first investment in Bitcoin or other virtual currencies after the stockmarket plummeted in early 2020, as fears for the economic consequences of containment of the virus were at their greatest.

Caroline Bowler, chief executive of BTC Markets, says only a year ago major investors tended to be males aged 24-45. However, there has been a shift to include a much broader investor group, including early retirees, high-net-worth individuals and institutional investors.

If consumers invest in these types of products, they should be prepared to lose all their money.

Britain’s Financial Conduct Authority

“There is an increasing understanding that cryptocurrencies are here for the longer term as part of digital assets more broadly,” Bowler says. “This is not an asset class that can be written off any longer and it is worth the time to become more educated and understand what it is all about.”

The survey found that while Bitcoin traders are still a dominant force, more people are holding it as a long-term store of wealth. About a quarter of those holding crypto earn more than $100,000 a year.

However, Bitcoin going mainstream does raise a question of whether some people are stumping up money they cannot afford to lose, given cryptocurrency prices are notoriously volatile.

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Just a year ago, Bitcoin was trading at about $US10,000. Price swings of 5-10 per cent in a single day are not uncommon.

In January, Britain’s Financial Conduct Authority delivered a stern warning that investing in crypto assets, or products linked to them, “generally involves taking very high risks with investors’ money”.

“If consumers invest in these types of products, they should be prepared to lose all their money”, the authority said.

However, Henrik Andersson, co-founder and chief investment officer at Apollo Capital, a specialist crypto assets fund manager, says Bitcoin is powering the next generation of computing infrastructure.

“Crypto is central to the rollout of rapidly growing decentralised finance markets – alternative financial infrastructures that are powered by blockchain [technology],” he says.

Investors in Apollo’s two crypto funds are ultra-high net worth families and institutional investors who typically put only a small slice of their investment portfolios into crypto assets, Andersson says.

Though the “upside” is huge, the risks are very real, he says. “I don’t think anyone should be in cryptocurrencies unless they can afford to lose money,” he says.

Andersson does not think Bitcoin will “ever go to zero” but it would likely continue to be an “extremely volatile and risky investment”.

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He says despite the talk of Bitcoin becoming “digital gold”, the capitalisation of the Bitcoin market is very small compared to that of the yellow metal and its volatility would need to decrease before it could compete with money as a major medium of exchange.

Michael McCarthy,…