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Crypto boom requires caution

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Cryptocurrency has boomed in popularity despite the risks but investors have been warned to consider their actions before committing to the asset class.

A currency trader has warned investors to take a sensible approach to investing in cryptocurrency as the digital asset continues to boom amid the promise of potential high returns.

During the recent Stockbrokers and Financial Advisers Association 2021 Conference in Sydney, MH Carnegie & Co founding partner Mark Carnegie said more retail clients were investing capital into blockchain cryptocurrencies rather than traditional bank deposits as the potential for high returns enticed more investors, despite the volatility.

“They are essentially taking capital and instead of putting it on a bank deposit, they are putting it on a blockchain deposit, doing some bitcoin mining, where we know the protocols and we know the risks,” Carnegie said.

“In some cases it can give people 70 per cent of the upside and 40 per cent of the downside, but how long that cycle lasts, I don’t know, but it doesn’t feel like it’s running out of gas.”

According to Carnegie Australia’s reluctance to create security protocols when cryptocurrency was first released has resulted in chaos, but believes “they can bring the genie back into the bottle”.

In addition, he observed many investors are being misinformed by social media trends and influencers providing an example of how dangerous it can be.

“People are missing out at the moment because they don’t have a mechanism to do a sensible investment strategy with crypto and they open up their own account and then it’s just a day at the horse races,” he said.

“It’s like on Melbourne Cup day when you are down $300 or $500 and you’ve got race seven to go and are looking for the least drunk person to give you a tip to try and pull back your losses. But this is serious money because people are taking huge positions and then they double up at the top of the market.

“Sophisticated investors usually have financial advisers that have been calming them down when they had a rush of blood to the head, but I am getting calls from people interested in crypto funds saying they want to put 50 per cent of their net worth in.

“It’s crazy out there because these are small-time guys with $50,000 to $100,000 and that’s their life savings and they’re talking about putting half of that into Bitcoin at age 60, and that’s why they need advice.

“I would implore you to think about this because asset allocation in this space should be about 1 per cent at the moment.”

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