Digital assets have been back in the news recently as more major organizations have entered the market and certain cryptocurrencies have undergone headline-grabbing swings in value.
Global financial firms have increasingly been diversifying into digital assets, and in January, JP Morgan said that investors could consider allocating 1% of their portfolios to cryptocurrencies. At the same time, Bitcoin’s value has been rocketing, reaching an all-time high of more than US$60,000 in mid-April before falling again. However, even after a significant drop, at the end of April it was still far above 2020 levels.
Many retail investors are interested in exploring these assets, but the world of cryptocurrency is complex and fast-moving. To help members understand cryptocurrencies better, and the role they can play for investors, we heard from two expert speakers at a webinar on 12 April.
Adrian Lai is CEO of Hong Kong-based Liquefy, a fintech platform that focuses on tokenization using blockchain technology. He explained some of the different players within the cryptocurrency universe.
People are most likely to be familiar with the utility currencies that allow users to make transactions on a peer-to-peer basis. Bitcoin is the best known of these, but there are in fact more than 3,000 different cyptopcurrencies.
“The benefits are that it is very quick and cheap to use,” Lai explained. “For example, you can send money to a friend in America within 15 minutes, not the two days it would usually take for a bank to process.”
Then there are infrastructure platforms like Ethereum, which is like a decentralized Google, Lai said. These have a lot of potential for use in the future. “Bitcoin is digital gold, while Ethereum is digital oil,” he said.
There are also privacy tokens, which are harder to track. They can be useful for banks to better protect clients’ privacy, for example, but on the down side, they have been used for illegal transactions.
Also speaking at the event was Kevin Loo, from New Vision Asset Management, a fund manager that enables investors to access cryptocurrency assets. “We don’t produce our own blockchain or issue tokens,” he said. “We invest and we trade on behalf of our clients, and help clients to understand the cryptocurrency market.”
Loo noted that big investors like Morgan Stanley had entered the market, and that investment portfolios that include cryptocurrencies like Bitcoin have fared well over the past few years. But he warned that prospective buyers should do their research, seek professional help before investing, and not expect that it is an easy route to quick riches.
In 2018 during the “crypto winter” for example, investors holding Bitcoin would have seen their portfolios underperform. Overall, however, he agreed with Lai that investors can benefit from diversifying to include cryptocurrencies.
“We are not here to tell you the right number to allocate to the crypto market,” Loo said. “But we will say what the wrong number is, and that is zero. You should have some digital assets in any diversified portfolio.”