Elize Botha | Managing Director | Old Mutual Unit Trusts | christabell.kota@omwealth.co.za | www.oldmutual.co.za |
While it may be tempting to buy into the evolving cryptocurrency hype, some investors – particularly those who don’t have all the facts – may be getting ahead of themselves.
It is important to remember that Bitcoin only dates back to 2009, making it a very young and enigmatic asset class. New asset classes of this nature, regardless of their potential for speculative short-term return, are inherently volatile and carry a high degree of investment risk – the dot-com bubble during the 1990s comes to mind in this respect.
Legality
A significant portion of the risk associated with Bitcoin is as a result of the largely uncertain standpoint being taken by lawmakers and regulators.
The legality of Bitcoin, and any other cryptocurrencies for that matter, varies from country to country, and it appears that regulators worldwide are struggling to control the exponential growth of Bitcoin, being a cryptocurrency that cannot be tied to any specific nation or economy.
As a result, an increasing number of countries have begun to tighten their cryptocurrency regulations, with some going as far as to ban the trading of Bitcoin and other virtual currencies altogether. Chinese regulators, for example, banned cryptocurrency exchanges and initial coin offerings (ICOs) two months ago, contributing to a sudden drop in price being experienced.
Riskier?
The high level of uncertainty surrounding the explosive growth of Bitcoin highlights, the benefits of sticking to a sound investment strategy and not necessarily buying into the latest hype, just because of the record-breaking high returns.
While these new riskier asset classes can be an exciting additional component to an investment portfolio, investors should consider their prospect of long-term financial stability before making a hasty decision.
It is therefore essential that investors – especially those who may be nearing or in retirement – utilise an investment solution that has been proven to achieve financial objectives. Unit trusts are therefore often utilised in this respect, as they are a flexible investment option, which allows access to a variety of investment options, including equity, bond and property funds.
Whether it be through the allocation to a new asset class or via a well-trusted wealth creation solution such as unit trusts, whatever decision an investor decides to make should be an informed one. While the future of Bitcoin remains indefinite for the most part, your future should not be.
Never mind over-priced BTC, focus more on the cheaper coins like Ethereum, Litecoin, Ripple and even Bitcoin cash and Bitcoin Gold. Many people trade these like a diversified portfolio, never over-exposing on any one. The advantage is the superior potential return rates. One can buy and sell ‘physical’ coins at altcointrader.co.za for instance and hold them like an asset.