SMSF trustees should not rush to invest in cryptocurrency despite a surge in value in 2020, an investment expert has said.
AMP Capital head of investment strategy and chief economist Shane Oliver said there were a number of fundamental risks relating to cryptocurrency that should not be overlooked by investors, with an inability to accurately value such currencies being a key concern.
“Some cryptocurrencies have experienced a surge in value, and interest, since the pandemic. Still, for me, there’s a long way to go before it becomes clear how to determine their fundamental value,” Oliver explained.
“This is the thing which, in my view, remains a biting issue for cryptocurrency: it’s very hard to value. It’s not like shares, like copper, like cash – we still don’t wholly know what drives its value over a long period of time.”
The fact Bitcoin and other cryptocurrencies do not generate income directly was another cause for concern, he pointed out, and adds to the difficulty of their valuations as well as increasing their potential for “speculative booms and busts”.
“When taken together the supply of cryptocurrencies is unlimited. This makes them less reliable than traditional paper money in advanced nations where supply is managed,” he added.
According to Oliver the volatile performance of some popular cryptocurrencies also made it difficult to ascertain their buying power.
“It’s clear digital currency does have a future, especially when you start to see central banks and major financial institutions taking an interest. However, it’s just hard to know what form that will take,” he noted.
“As with everything related to markets, I think it remains important to turn down the noise, consider the investment fundamentals and make sure you fully understand what you are getting into before joining a growing investment crowd.”
In December, Kraken Australia managing director Jonathon Miller said SMSF investors considering investing in Bitcoin should not be deterred by the volatile nature of cryptocurrency as seen three years ago.''