There has been a lot of buzz surrounding cryptocurrencies like Bitcoin and Ethereum, particularly on social media. In this video, MOIRA O’NEILL and ROBIN POWELL ask whether it’s really wise for investors to buy into the excitement.
TRANSCRIPT
Robin Powell: One of the big developments in global finance in recent years has been the growth of digital currencies known as cryptocurrencies, such as Bitcoin and Ethereum. These currencies are unconnected to governments and are based on what’s called blockchain technology. But, as an investment, they are extremely risky.
Moira O’Neill: They’re basically a new form of currency. Over the years, we’ve had things like potatoes being used as currency, actual gold and silver coins, and then we switched to paper money – to the IOUs that we have today. And digital currencies are just a new form of currency. Now, investing in that, I think, is problematic because it’s unknown. We have seen them, as an asset class, doing incredibly well in recent years; but that doesn’t mean they can’t crash. In fact, a lot of them have been very volatile, there are literally thousands of them. I think there’s a lot of noise around cryptocurrencies on social media, and a lot of stories of people getting incredibly rich through investing in them. Once you hear “get-rich-quick” stories – to me, that screams “Alarm bell! Alarm bell!” If people are getting rich very quickly in a short space of time, that means it’s incredibly high risk.
RP: Of course there’s nothing wrong with taking a gamble if that’s what you really want to do. But it doesn’t make sense to invest more than a very small portion of your overall portfolio. You should also be prepared to lose your entire stake.
MO: I’ve also spoken to experienced investors, who’ve been investing in stock markets for many years. Some of those are putting small amounts into bitcoin, for example, but we’re talking about one or two per cent of their overall portfolio. We’re not talking about putting thousands and thousands of pounds in and taking big punts on these things.
RP: Cryptocurrencies are especially popular with younger people, some of whom are even borrowing money to invest in them. For Moira O’Neill, that’s very concerning.
MO: I think if you don’t understand something fully, you shouldn’t be investing in it. I think that’s a really important lesson to communicate to young people who may be putting their money in. Do you really understand what it is? We need to be aware that our money that we’ve earned is precious, and we must be putting it into things that we really know are solid, long-term assets that are going to deliver for us. I’m not sure cryptocurrency fits into that category at the moment.
RP: Cryptocurrencies, in short, sound exciting. But the mundane reality is that sensible investing is actually quite dull. If it’s excitement you really crave, you may want to try something like a bungee jump instead.
ALSO IN THIS SERIES
How much can you trust the investment industry?
Does the financial media hinder investors?
How do you view the stock market?
CONTENT FOR ADVICE FIRMS
These videos are examples of the high-quality financial education content produced by Regis Media. If you work for a financial advice firm and would like to learn more about the content we provide for advisers around the world, email Robin Powell, who will be happy to help you.
THE TEBI YOUTUBE CHANNEL
Have you visited The Evidence-Based Investor’s YouTube channel lately? You’ll find a wide selection of videos on there, all about investing and personal finance. Why not subscribe and be one of the first to see our latest content?
© The Evidence-Based Investor MMXXIII
