For most clients, the biggest worry, after meeting daily financial commitments, the biggest worry on their mind is whether they will be able to retire in relative comfort being able to maintain the lifestyle that they had just before retirement.
However, the current economic environment is tough on investors. They are not seeing the returns that they would like and their advisers are telling them that fund managers are struggling to find the alpha which is necessary to grow their fund.
However, there is more than one way to skin a cat. While mostly the providence of the direct investment market, cryptocurrencies such as Bitcoin can offer interesting alternatives to investors who are looking for growth.
There are some financial advisers who are advising their clients to consider cryptocurrencies as an asset class, but even this advice comes with a spoonful of caution.
An online blog on the value of cryptocurrencies as an asset class provides some valuable insight into this practice.
The blog says that investing in Bitcoin and other cryptocurrencies provide an exciting opportunity to invest in an entirely new asset class – Initial Coin Offering (ICO) – with its inherent nature of high risk, high returns.
It is especially high risk for those who start investing in these assets without learning and understanding the function and value of a specific crypto coin of investment interest.
Don’t be scared
For some investors, the above cautionary note is not a large enough deterrent to ignore ICO as an asset class.
An online article on the CNBC website says that despite pricing volatility, ICO is gaining traction.
Investors should not be put off by the price volatility for cryptocurrencies like Bitcoin and Ethereum because these digital assets are still very new and offer nearly unparalleled returns, experts told CNBC.
Bobby Lee, CEO of Chinese Bitcoin exchange BTCC, told CNBC the gyration in prices was normal as the true value for these assets have yet to be discovered.
He explained as people have yet to discover the true value of an asset like bitcoin, they tend to trade them at a certain, discounted level before the market realizes it could be worth more and then the price jumps.
Cryptocurrencies are partly becoming more popular because countries and companies are taking a closer look at the technology that underpins them: blockchain. Japan, for example, approved bitcoin as a legal payment method in April.
“We’re now sort of at … a tipping point, where people are now considering bitcoin or Ethereum or digital assets as more mainstream,” Dave Chapman, managing director of Hong Kong-based commodities and digital assets trading house Octagon Strategy.
The speculative side
Speaking to at the recently held Independent Financial Advisers Symposium, Michael Forestner – Global CIO Private Markets at Mercer Investment Consulting – said that he was less than convinced about the longevity of cryptocurriencies.
“Bitcoin has the characteristics of money (durability, portability, fungibility, scarcity, divisibility, and recognizability) based on the properties of mathematics rather than relying on physical properties (like gold and silver) or trust in central authorities. In short, Bitcoin is backed by mathematics,” said Forestner.
With these attributes, all that is required for a form of money to hold value is trust and adoption.
This is where the debate arises; because Bitcoin is largely governed by mathematics, it is largely unregulated. China has already banned the use of, and investing in, Bitcoin and the Bitcoin Foundation is seeking protection from US regulators. If the bottom falls out of the market, what protection do investors have?
There may be a value in investing in cryptocurrencies, and maybe you are one of those advisers who are encouraging clients not to ignore this asset class. Until it is regulated, there will always be an air of caution around this type of investing, and your clients may not like it.
Be wary of your surroundings
For many people, the appeal of cryptocurrency trading is that virtual currencies do not run the risks that conventional currencies do. However, this does not make them bullet proof and absent of their own challenges.
According to a recent article on independent.co.uk, Bitcoin fell the most in a week after the company behind cryptocurrency tether reported a $31 million theft.
The amount was taken from the Tether Treasury wallet on 19 November and sent to an unauthorised bitcoin address, according to an announcement on the company’s website posted on Tuesday. The stolen tokens will not be redeemed, and the company is trying to prevent them from entering the ecosystem, it added. Bitcoin dropped as much as 5.4 per cent, the most since 13 November.
The article points out that the Tether incident is the latest in a long list of hacks that have dented confidence in the security of cryptocurrencies.
Such events typically have fleeting market impact: bitcoin has surged to one record after another during the past few years despite major thefts from exchanges including Bitfinex and Mt. Gox.
Tether, with a market capitalization of $673 million, is the world’s 19th most-valuable virtual currency, according to data on Coinmarketcap.com. The tokens are pegged to fiat currencies, allowing users to store and transfer globally and instantly, according to the website.
Don’t spread the word
Cryptocurrency trading is a hot topic, but it seems as if it should not be spoken about openly with those who are close to us.
According to an article on cnbc.com, one common crime that’s carried out on cryptocurrency investors is the phone-porting attack. Hackers snoop around social media, looking for cryptocurrency conversations in which investors post their phone and email for easy contact. Then, posing as the victim, they call up the phone provider in an attempt to fool the customer service representative into transferring the phone number to a device they control.
The article adds that once the hackers take over the phone number, they can go into the victim’s cryptocurrency exchange account by resetting the password, ultimately stealing cryptocurrencies from the account. Cody Brown, a virtual reality developer, blogged about how he lost around $8,000 worth of cryptocurrencies on Coinbase in 15 minutes, triggered by a phone porting attack on his phone account.
A cellphone number is not the only point of weakness. Adam Dachis, a former writer for Lifehacker, says his Coinbase account was ransacked in May by hackers who took control of his home computer, costing him $10,000 worth of cryptocurrencies.
“Computer hacks, phishing attacks and cryptocurrency Ponzi schemes are all common types of cryptocurrency theft,” Jonathan Levin, co-founder of Chainalysis, an intelligence software firm that specializes in tracking and solving cryptocurrency crimes told cnbc.com.