A specialist digital asset manager has provided a rule of thumb to allow investors to quantify the level of risk associated with cryptocurrencies compared to the risk level inherent in equities.
Speaking as part of a cryptocurrency and digital asset panel session at the recent Australian Shareholders’ Association Investor Conference 2022 in Melbourne, Balmoral Digital founding partner Angus Crennan told delegates: “Thinks of it like for every dollar that you put into cryptocurrencies it’s [the equivalent of] six to 10 dollars going into equities, that’s about the level of risk that you’re taking.”
Despite the high level of risk cryptocurrencies hold, Crennan pointed out they can be complementary to other more traditional investment holdings.
“Equally there are a lot of properties that come with crypto that differentiate it and [give it] different characteristics than what you’ve got in your existing portfolio,” he said.
Fellow panellist Apollo Capital chief investment officer Henrik Andersson acknowledged the increased level of risk associated with cryptocurrencies and as such recommended a very conservative approach to investment in the asset class.
“The risk is very high and the volatility is higher than any other investment asset out there basically,” Andersson said.
“So I think the right approach to it, if you believe in this space, is to maybe invest a small amount, maybe 1 per cent or 2 per cent, of your investable assets into [cryptocurrencies].
“At least they have the potential to grow very rapidly, but you don’t want to invest too much because it is extremely volatile and it goes through big cycles.”
To this end, he suggested it is important not to take a short-term approach to cryptocurrencies.
“In the last six months we’ve seen crypto-assets go down in price so if you invested [in crypto-assets] six months ago, you will be suffering today. But if you invested six months ago and had a long-term view for the next five to 10 years, you probably would buy some more crypto-assets today [to take advantage of the lower prices],” he noted.''