We don’t write many cryptocurrency articles. This is because we really don’t understand it. It’s not from lack of trying though – we’ve read books about it, listened to podcasts and tried to learn. But nope, it’s too hard for us. Blockchain, altcoins, DeFi, NFTs, mining – what is all this?!?! I suspect that many “investors” in crypto don’t understand it either, and therein lies part of the problem…
The collapse of FTX’s exchange in November and the contagion across all cryptocurrency markets was a white-knuckle ride that has sadly resulted in the loss of many billions of dollars. Apparently, there are 30,000 account-holders in FTX’s Australian arm, most who face an uncertain few months worrying about the existence of their funds. The FTX saga has a fair bit to play out and may well have involved criminal activity (both by FTX executives and cyber criminals).
I don’t hold cryptocurrency and cannot see a time when I will. The crypto story has been largely underwhelming for me. Founded in 2009 and promised as the future of currency, Bitcoin remains the largest and most well-known currency, and it’s hardly infiltrated society as we know it. We can’t pay for our cups of coffee with it, and I’m not aware that I can elect to receive my salary in Bitcoins. If I can’t use a currency as money, what use is it? Of course, you could argue the same about any foreign currency, however the speculation in foreign exchanges is limited, and predominantly the domain of those with foreign exchange trading experience. Crypto has captured the imagination of many first-time investors seduced by recent returns and the vibe that exists around it. Sadly, in many cases it has blown up their savings.
Despite being a currency, it is often discussed as an investment. Clients ask me about including crypto in their investment portfolios, and multiple clients have considered allocating a significant portion of their super funds to crypto. Our message has been consistent. We won’t talk people out of investing in areas that interest them, but it is unlikely we would suggest this to be the core strategy you adopt. A small allocation may add excitement and interest to a portfolio and we won’t talk you out of that, but we would prefer to use more regulated options of investing in crypto (such as Exchange Traded Funds that provide access to crypto and companies developing and using blockchain technology). Crypto ETFs can be a much safer way to gain exposure as they are listed on the ASX and therefore held by an entity in a much more regulated market.
Crypto markets will recover from the FTX fiasco and perhaps the whole industry will be better for it. It’s important to know that the significant price correction in November has nothing to do with the currencies themselves. At the core of the FTX issue is a lack of regulation in crypto markets, exchanges and storage. Governments will inevitably act (as they should) to tighten regulation and increase their presence in these markets to, as much as they can, protect those who participate. Once this occurs, confidence in the market should return. I do wonder though, if crypto markets become heavily regulated by governments, does it mean it is no longer operating free of the central control that made it such an attractive proposition in the first place?