Crypto Investing 101: Separating Hype from Reality
As a bright-eyed [AGE REDACTED]-year-old in 2017, I stumbled upon an article discussing the then-relatively new cryptocurrency called Ethereum. The article made claims about how it and various other digital currencies were going to revolutionize the internet and entirely change the way we interact, transact, and work online. It sounded pretty cool at the time.
Understanding the crypto space
Fast-forward to today, and investing in the cryptocurrency space can be daunting, especially 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.
Investing in Bitcoin ETFs
However, 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. This also means crypto is much more accessible, making it easier for everyday investors 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, here are some tips:
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.
Don’t Get Caught Up in the Hype
Like any high-risk, high-reward investment, especially with crypto, it’s important not to get sucked into 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.
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.
“Digital assets remain highly volatile and as a result should only form a very small part of an overall portfolio.” - Justin Arzadon, head of digital assets at ETF provider Betashares
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 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.
Investing in cryptocurrency
By following these tips and being cautious, you can make informed decisions about investing in the cryptocurrency space. Remember, it’s essential to separate the hype from reality and not get caught up in the excitement. With careful consideration and a measured approach, you can make the most of your investments and avoid the pitfalls of the crypto world.
