• Christopher Hall

Are Cryptos a good investment?

There’s no doubt that a lot of money has been made in cryptos over the last few years, although this type of fast new money is not a new phenomenon.

You might recall other times when media covered the new millionaires and how they got there:

  • Grey China markets powering Bellamy’s and Blackmores shares higher (2015-2016)

  • Fortescue Metals cracked higher towards $13, from $0.05 (2005-2008. I had clients in at $0.05, and sold at $0.08);

  • Google shares when they first listed and issued stock to all staff from the CEO to the janitor; they all became exceptionally wealthy in a short amount of time (2004)

  • Uranium boom of 2006

  • Iron Ore boom of 2005-2007

  • Lithium, Rare Earths, Cobalt etc.

  • The Dot Com bubble that rocked the US tech market (less in AU)

  • Poseidon shares of the 1970s

We could keep going with more and more examples, but the point is that there is always another bus coming.

Cryptos have changed the world.

The technology behind Cryptos is indeed world-changing.

The technology behind Cryptos has already been adopted by industries such as banking. Transfers which used to take 48hours, can now be almost immediate. Additionally, Cryptos have made it into the ABC radio finance report each news break, so we know they have peaked the everyday man’s interest, and continue to, every 15 minutes at least.

Other world changing innovations were the internet, mobile phones, Wi-fi and microchips. Rarely however, are the initial inventors the ones who collect the spoils.

Only time will tell how the early innovators will be treated moving forward and ultimately remembered.

Why Cryptos are different

For cryptos, the difference has been that buying is easier, with the low regulation and global access.

Compare this to the difficulty faced by foreign investors trying to buy shares in, say Google, Bellamy’s or Fortescue Metals, on heavily regulated exchanges like the ASX or NYSE. For example, just setting up share trading accounts requires:

  • A regulated market participant, often with $10m bond held at the ASX;

  • A qualified broker or platform whose licensee is annually audited by the Australian Securities and Investment Commission (ASIC);

  • Provide adequately secure and robust technology to protect investors;

  • Proving sufficient, certified ID to comply with Anti-Money Laundering Laws;

  • Your broker meeting the minimum Know Your Client requirements

Cryptos are also a global opportunity, notably different to most of the above examples that were overall geographically centric. For example, mining companies mostly garner the interest of residents of economies with strong mining focus (Australia, Canada, South Africa etc), or the Dot Com boom was most compelling to tech-centric economies (not Australia in 1999).

Tomorrow’s Crypto-billionaires

Certainly, in time, we will remember a select few who made and kept their fortunes from cryptos.

History tells us however that more investors rise and fall back with the market movements, with the net result being negligible.

I’ll happily be wrong, and we will know that cryptos are the road to economic supremacy when the waterfront homes on Sydney Harbour are all owned by Crypto-traders/investors.

The Melbourne and Sydney property markets however, are still slightly falling and we’re yet to see the Crypto-traders swoop in and mop up the slack in the property market like miners did in the Perth/WA property markets some 10 years ago.

In that light, over the long run, prudent investing will produce more winning investors with sustainable, life-changing results.

Crypto’s Kryptonite

Now the disclaimer: Cryptos are, for the moment, not a regulated product in Australia.

Which means investors cannot receive actual regulated financial advice about cryptos nor can we endorse cryptos as a viable/suitable investment.

In saying that, we do have clients trading cryptos. Some very, very successful, other much less so.

The crypto-trading clients trade on their own steam.

This article is only conversational regarding alternative investment themes and in no way to encourage nor deter trading cryptos if that is what you would like to do. Perform your own research for what is right in your own personal circumstances.

Crypto’s Competitors

From my personal investing stance, on any given day, I can identify 100+ opportunities on the ASX that made more than 100% with a reasonable flow of rationality - mostly through trading options and warrants.

As for Cryptos, I cannot articulate the driving forces behind the rises and falls, certainly others more informed that I either can, or claim to pin-point the forces driving crypto-prices.

I can, however, draw parallels to the loosely regulated trading on the NYSE at the turn of last century where dark pools, cornering and market raids, were par for the course.

A great novel which is worth reading for investors in any market, is The Reminiscences of a Stock Operator, 1923, by Edwin Lefevre.

All these trading tactics from a century ago were to be out-lawed in the decades to follow. Now the illegal trading approaches are heavily monitored by their respective regulators (like ASIC for Australia) to maintain a fair and orderly market place.

Crypto’s Future

The future for cryptos is still being written, and the current chapter is regulation.

The spikes in crypto’s prices over the last few months have captured mainstream media. Before this gold-rush in cryptos, in late 2017, the Australian regulators were adamant that cryptos would not be regulated in the same manner as other financial instruments. 2018 discussions have however turned toward regulation.

For context, there are:

  • Regulated exchanges in the US which deal with cryptos;

  • Dozens of large, legitimate Australian financial services firms lobbying to offer Australian investors a regulated crypto exchange;

  • Innovative Australian companies working extensively with legal firms to offer a new regulated crypto for Australian investors

What is certain is those who trail blaze and pioneer a regulated solution for Australian crypto investors will do the heavy lifting. History indicates though, that they will not necessarily be the ones to reap the ultimate gains.

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