Oliver Maher is a director at United Advisers Marine. Disclaimer: UA/BFMI is a member of Nexus Global and an appointed Representative of Blacktower Financial Management (International) Limited (BFMI). BFMI is licensed and regulated by the Gibraltar Financial Services Commission (FSC). UA/BFMI are not tax advisers and clients should always seek independent tax advice for their individual circumstances. +34 871 115 928; www.unitedadvisersmarine.com
With the current rise (and fall) of cryptocurrencies and the heightened interest that’s steadily sweeping amongst seasoned investors and novices alike, we thought we’d compare some key differences when it comes to traditional financial markets and cryptocurrencies — such as Bitcoin and Ethereum.
When considering investing, you cannot approach cryptocurrencies as you would with traditional forms of investment. Cryptocurrencies and crypto exchanges are manipulated in ways that make adoption a lot harder to assess. Thus, the crypto asset cannot be measured as simply as you might think. No investment comes without risk but with more traditional investment forms like stocks, it’s seemingly easier to assess the value. With traditional assets, we see more regulation, security, and it is generally a lot more foolproof for new investors.
Although with crypto’s underlying blockchain encryption, this is viewed as an innovative measure that protects against traditional threats.
Cryptocurrencies, such as Bitcoin, are driven by the possible adoption and future success of the asset. What this really means is that cryptocurrencies will in theory only come into practice in the mainstream if they can be linked to industries that supersede the usual framework.
With traditional assets, we see more regulation, security, and it is generally a lot more foolproof for new investors.
It is already making headway in certain arenas that would not be so accommodating with traditional investment assets, especially those that need to rely on currency exchanges. Even though cryptocurrencies have been around for a while and are rapidly gaining popularity in recent years, they’re limited in their practical function.
Undeniably, for the industries using cryptocurrencies, there’s huge potential. In terms of measurement, however, it’s contained within itself, creating a disconnect when measuring data and profit margins.
Although it’s an investment worth considering, Bitcoin being the main example, it’s contained within a competitive market process and profit margins are thin or virtually nonexistent. It’s not so easy to define how these investments are measured and what they may mean in the present market.
Our Consensus: Cryptocurrencies could work for those looking to diversify their portfolios — they’re a great digital-based investment and offer variety within their field. One of the obvious advantages is that they aren’t tied to a specific currency, which allows you to hold an asset that’s unaffected by economic factors (such as hyperinflation). However, cryptocurrencies are very volatile in nature. The confusion that surrounds the adoption and measurement of such an asset requires quite a bit of decoding.
When it comes to the traditional assets (e.g. equities, property, gold), they’re here for the long run in most cases and are a much more stable way to expand your portfolio. Although Bitcoin can grow in leaps and bounds, seemingly overnight almost, it can also fall just as fast.
This article originally ran in the August 2021 issue of Dockwalk.