Crypto currency has become one of the most contentious investments of the decade, with some believing it is a sham that will end in tears and others believing it’s the future of investing.
And those protagonists are not economic nobodies. We’re talking the Commonwealth Bank and a host of super funds. Even the leading authorities in Australian Finance can’t agree. Like the Reserve Bank and ASIC.
So what chance have we got of getting this right?
The sector is worth $2.6 trillion and values yo-yo up and down with giddying
New readers start here:
Wikipedia tells us a cryptocurrency, crypto-currency, or crypto is a collection of binary data which is designed to work as a medium of exchange. Individual coin ownership records are stored in a ledger, which is a computerised database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.
Who’s supporting it:
Here’s what Matt Cormyn, CEO of the Commonwealth Bank said after offering cryptocurrencies to his customers:
“It is accelerating at a rate you have to look very closely at. We believe we would rather have a seat at the table and be understanding, versus … many financial institutions [who] look at the space and hope it will be regulated out of existence. I think that is unlikely.”
He added: “We have to build credibility, we have to understand,” he said. “Do I think there is long-term applicability and enormous amounts of investment and innovation? Absolutely.
Who thinks it’s a shonk:
The Reserve Bank, no less, tells us those holding crypto are actually holding speculative assets with “niche” uses that could loose most of their value.
Tony Richards, the bank’s head of payments, was reported by the Financial Review as saying the value of many cryptocurrencies could crash when central banks decide to assert control over their monetary systems.
“I think there are plausible scenarios where a range of factors could come together to significantly challenge the current fervour for cryptocurrencies, so that the current speculative demand could begin to reverse, and much of the price increases of recent years could be unwound,” he told the Australian Corporate Treasury Association.
Evangelists believe that crypto is experiencing a similarly painful birth to that of the internet. Traditional media owners laughed out load at the claims that the internet was a threat to their platforms – today the internet takes 90 per cent of all advertising revenue.
John Addis, founder of Intelligent Investor, believes crypto is a digital “wild west”. He says another big problem with crypto is it is “non-custodial”, which means investors maintain control of their own keys and assets. If the keys are lost, the value is gone, and if the system is hacked, or there is a scam, there is no recourse.
So should you invest?
Despite its downsides, Bitcoin can be a worthwhile investment. However, it’s important to consider whether it’s right for your portfolio.
All cryptocurrencies are risky, and Bitcoin is no exception. It has experienced extreme volatility in the past, at times losing more than 80% of its value.