Photo: CFOTO / NurPhoto via AFP
News this week that Bitcoin has crossed the US$100,000 threshold may have you wondering whether you should be investing in cryptocurrency.
Since Bitcoin launched in 2009, it and other cryptocurrencies have developed a following of die-hard proponents – but also attracted the attention of speculators and investors.
James Quinn-Kumar, director of community engagement for Binance Australia and New Zealand, said this week was a landmark moment.
“Bitcoin surpassing US$100,000 marks a momentous shift in the global financial landscape. In just under 16 years Bitcoin has become one of the top assets in the world, having transitioned from a niche asset to a mainstream financial instrument. This is quite a miraculous feat.”
But how could you, as a New Zealand investor, get a slice of the crypto market – and more importantly, should you?
There are three key ways that New Zealand investors can invest in crypto, if they want to.
Via exchange-traded funds
Rupert Carlyon, founder of Koura KiwiSaver, said the introduction of Bitcoin ETFs, including BlackRock’s iShares Bitcoin Trust (IBIT), had provided a new way for New Zealand investors to access cryptocurrency.
“You can go on to Sharesies or your Hatch account and buy a Bitcoin ETF or an Ethereum ETF. That’s a very simple way, it’s easy to set up and get money in and out and there are tax advantages doing that. My strong suggestion would be that anyone buying Bitcoin or Ethereum do it via ETFs listed in the US.”
Via KiwiSaver
Koura also offers a cryptocurrency fund, which is designed to represent a small part of a KiwiSaver investment.
Morningstar’s latest data showed that it returned more than 100 percent in the year to September.
Directly
You can also invest in cryptocurrency directly, via one of the exchanges such as Easy Crypto or Binance and hold the money in your own wallet, or via their custody platforms.
The biggest drawback with this is that the crypto is essentially the same as cash – if you lose access to your wallet, it is gone.
Carlyon said that made it a bit scary.
“It means you’ve got to keep the keys to that wallet and if you lose access to the codes there’s no way of recovering the crypto. There are lots of stories of people who’ve lost their wallet and are digging up rubbish dump”
Having the currency in an exchange’s custody platform erased that issue but he said it would be important to choose one that was well regulated. Investors have been caught out in the past with their assets being mingled with the finances of a platform’s business.
Should you invest, anyway?
Carlyon said people would either believe in cryptocurrency as an asset class or they would not.
“It’s gone on a massive run over the last 12 to 18 months but it’s still tiny by international standards of other asset classes.
“The market cap is $1.7 trillion, that’s not even the top five in the S&P500. Gold has an $18 trillion market cap. If you believe it’s going to become a legitimate investment class that lots of people invest in it should keep growing and get bigger – that’s the laws of supply and demand.
“I do believe it will be a genuine asset class. A lot of people disagree with me on that – but a genuine asset class needs a market cap of more than $1.8 trillion.”
Carlyon said 70 percent of the Bitcoin assets were held by very long-term investors so only 30 percent was regularly traded.
“That makes it a massive game of supply and demand … you don’t need that many people to push up the price pretty significantly because they’re only chasing a small amount of Bitcoin available. Then when people want to get out they rush to the exit and historically there has not been a very deep pool of buyers, that’s why we have had massive price falls as well.”
Carlyon said he hoped that ETFs would change the volatility.
“With shares, when the prices drop you get the hedge fund algorithmic traders jumping in and start buying. Historically that’s been hard for institutions to do [with cryptocurrency]. Now they can do it with the existing infrastructure that they have set up … That’s why I hope the volatility reduces, as a result of it being a lot easier to buy and sell.
“But it’s highly risky, it’s still unproven. If you are going to go ito it, go in with your eyes and open and don’t put everything into it.”
He said 5 percent of an investor’s portfolio might be a appropriate amount to invest.
“Be very careful about doing more than that. Diversification is the most important part of being a good investor and that’s what people forget – when they’re buying Bitcoin they are an investor.”
Quinn-Kumar said research would be key for investors.
“This is a very volatile asset class, it’s prove to be that over a number of years. With that comes the opportunity for higher rewards but the downside is higher risk. Everyone has to do their own research and figure out what level of investment is right for them.”
He said people should start small and only invest what they were willing to lose while they got an understanding of the market and what they were investing in.
“The asset class has proven itself to be quite resilient. It has proven to be an interesting investment for people looking to diversify their investment strategy or as a hedge against inflation.”
Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.