Cryptocurrencies, such as Bitcoin, XRP, Ethereum and Litecoin– everyone’s talking about them, including at the World Economic Forum this week in Davos.
After its all-time highs of $20,000 in December, Bitcoin, spent much of 2018 in bearish territory. Being the world’s largest and original digital currency, this weighed down the rest of the crypto market accordingly.
2019 has been relatively turbulent so far, but there are clear signs that the market is this year going to emerge from its crypto hangover and prices will recover.
There’s volatility in all financial markets – and this is often championed by savvy investors. The crypto space is no different and this year we have seen a return of volatility.
But despite – or indeed because of it – I remain confident that cryptocurrencies are the future of money.
There are several key reasons for this.
Firstly, there’s an evident and ever-growing demand for digital, global currencies in an increasingly digitalised and globalised world.
Second, there will be significant inflows of institutional investors this year. Major corporations, financial institutions, governments and their agencies, prestigious universities, and household-name investing legends are all going to bring their institutional capital and institutional expertise to the crypto market.
There is an undeniable feeling that institutional investors are preparing to move off the side-lines imminently.
And third, global crypto regulation is widely recognised as ‘inevitable’ – as opined by the Head of the International Monetary Fund, amongst many others. Regulation would drive certainty and confidence and, therefore, prices.
So how to invest in cryptocurrencies?
There are several important factors to consider.
Clearly, you need to evaluate carefully how much to invest in digital assets, but it is also necessary to get to know the fundamentals of a cryptocurrency, as this can play a major role in the level of risk involved.
It might be best to look at the purpose of the cryptocurrency you’re interested in, how long it has been in the market, its market capitalisation and its underlying tech solutions. Cryptocurrencies that solve problems are less likely to fail than those that are essentially ICOs.
Also, the longer a cryptocurrency has been in the market, the more trusted it is.
Last year I was quoted in various media outlets as saying: “Traditionalists who somehow still believe that cryptocurrencies are ‘just a fad’ could be compared to King Canute who is said to have attempted to command the tides of the sea to go back.
“It’s becoming increasingly clear that cryptocurrencies are the future of money.”
However, like all assets, crypto is not suitable for everyone. And, as ever, investors should always ensure that they maintain their investments in a well-diversified portfolio across different asset classes, sectors and geographical regions.
This helps position investors to mitigate risks and take advantage of opportunities as they arise.
By Nigel Green, deVere Group’s founder and chief executive