Should you buy cryptocurrencies?
- Robin Powell
- Feb 3
- 3 min read
Cryptocurrencies have surged in popularity, with millions of people across the globe now investing in them.
Bitcoin, Ethereum and Binance Coin are among the most widely known, but there are over 20,000 digital currencies in circulation.
These assets are not backed by governments and operate on blockchain technology. As an investment, they carry very high risks, as financial journalist MOIRA O’NEILL explains.
KEY TAKEAWAYS
1. Cryptocurrencies are a gamble, not a strategy
Digital currencies are a modern form of money, but that does not mean they are a sound investment. Their extreme volatility and hype-driven nature make them unsuitable for serious, long-term investors.
2. Small exposure is safer if you invest at all
Even seasoned investors who hold crypto usually limit their exposure to 1 or 2 percent of their portfolios. The potential for rapid gains exists, but so does the risk of losing everything.
3. Younger investors are especially vulnerable
Many younger people are drawn in by social media hype and get-rich-quick stories. Without fully understanding what they are buying, they risk losing hard-earned money on assets that may never deliver.
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TRANSCRIPT
Robin Powell: Millions of people around the world now invest in cryptocurrencies.
Bitcoin, Ethereum and Binance Coin are some of the most popular ones, but there are more than 20,000 of them in existence.
These currencies are unconnected to governments and are based on what’s called blockchain technology.
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. And you should 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 among younger people, some of whom are even borrowing money to invest in them. For Moira O’Neill, that’s a very concerning development.
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: In short, cryptocurrencies sound exciting. But the mundane reality is that sensible investing is actually pretty dull.
If it’s excitement you really crave, you may want to try something like a bungee jump instead.
