Cryptocurrencies such as Bitcoin and Ethereum have been on a wild ride over the past year or so, showing levels of volatility that make them a bad fit for the needs and nerves of a conservative investor.
Bitcoin, for example, peaked in value at nearly $20,000 towards the end of 2017, before falling to below $7,000 in the early months of 2018.
Though this might make cryptocurrency seem like a poor match with retirement planning, some financial advisors and platforms are looking at the asset class as part of the retirement investment mix. Auctus, a retirement investment platform, for example, offers optimised portfolios of bonds, stocks and cryptocurrencies.
In a world of persistently low interest rates, is there a role for investment in a cryptocurrency basket as part of a wider retirement plan?
And should investors be seeing crypto as a speculative opportunity, as a currency, or as virtual gold – a hedge against inflation and reserve currency weakness?
The extraordinary returns (both positive and negative) of cryptocurrency investment will no doubt attract interest as an investment medium for investors. Fund Managers and Portfolio Managers will soon look to the returns generated by Cryptocurrency and potentially start to view this as an “asset class” in its own right.
Like any instrument or asset class, one needs careful consideration of whether it should form part of an investment portfolio. Factors such as volatility, liquidity, time horizon, and propensity for risk will need to be considered. In addition, the ‘education of investors’ (legislative requirement) will prove interesting given the ‘intangible and confusing’ nature of this investment class.
Given the volatility that we have seen, strict controls on investing should be put in place, and similar to the way in which hedge funds were controlled in SA, possibly only exposed to the market through institutional funds. This will hopefully mean, that only investment specialists trade with this ‘new asset class’ and not Joe Public.
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