One investment with 28,900 per cent increase – but there are risks

It’s had a lot of ups and downs but this investment appears to be on the up again – and it could be a good time to get a piece of the pie.

Cryptocurrency: Investment with 28,900 per cent increase.

In the past 10 years, the total value of all cryptocurrency (crypto) has increased over 28,900 per cent from less than USD$8 billion to over USD$2.32 trillion today.

There was a huge run in the cryptocurrency space in 2021, followed by a massive crash and almost two year crypto winter, but cryptocurrency is again on the rise. This rise is attracting the attention of many would-be investors wondering if this is crypto is the best place to invest and make some money.

But because of the complexity surrounding crypto, the challenges around buying and selling, and concerns about the security of crypto platforms, many of these same would-be crypto investors are struggling to understand whether they should join the crypto movement.

What’s driving the popularity of cryptocurrency?

The basis of the majority of crypto like Bitcoin and other digital assets is blockchain technology that has been around since 1991. But it wasn’t until 2009 that Bitcoin was invented, and since then it’s grown and grown in popularity.

The ups and downs of crypto have been huge since inception, but when you look over the long term the upward trajectory is clear. Over the last five years we’ve seen increased adoption of cryptocurrency by big corporations which has further validated the fact that crypto is here to stay.

Earlier this year, the US has approved the launch of exchange traded funds (ETFs) that hold Bitcoin, allowing investors to access this burgeoning investment class in a much more easily accessible (and secure way).

This ‘validation’ of crypto by these big players and wider adoption continues to shift public opinion, and we’re now seeing people of all ages investing in greater numbers than ever before.

Cryptocurrencies such as Bitcoin have been adopted by big corporations. Picture: Angel Garcia/Bloomberg

Another driving factor of the growth of crypto has been the fact property and share markets around the world have been up and down since Covid, and there are growing voices talking about the potential for a sharemarket crash. Investors are looking for alternative places to invest their savings, and with the gains others have made through cryptocurrency it’s no wonder this investment is in the spotlight.

What are the risks with buying cryptocurrency?

All investments have risk attached to them, the reality most don’t think about is the fact risk is actually what makes you money when you invest. Investing into crypto is risky, but so is buying shares, property, and even doing nothing comes with its own risks.

But given the unregulated nature and complexity of the cryptocurrency markets, there are some key risks you should be across if you’re thinking about jumping on the digital crypto bandwagon.

The first big risk to be aware of is the ‘volatility’ or ups and downs in the value of crypto, which is significantly higher than more traditional investments like shares and property.

This volatility risk is driven by a number of factors like the fact positive and negative news like Elon Musk tweeting (or X’ing), the threat of regulation, and issues within crypto platforms all have a quick and heavy impact on crypto prices.

Cryptocurrencies can be volatile and subject to significant ups and downs. Picture: MARVIN RECINOS / AFP

Cryptocurrency and Bitcoin in particular is ‘tightly held’. The supply of cryptocurrency is limited and quite small relative to share investments. Further, a small number of investors hold a significant amount of the crypto supply. These two factors combine to mean that when a lot of people are buying and selling crypto, the price moves up or down further and faster than more traditional investments like shares.

The next risk involves the fact that most crypto like Bitcoin is held in a ‘digital wallet’ which means it is effectively being ‘minded’ for you by someone else. Thankfully this risk is reducing with the introduction of cryptocurrency ETFs, and hopefully this is what the future holds for crypto investors. But for now, most crypto is bought and sold on an ‘exchange’ which is largely unregulated.

This is in contrast to a share portfolio in Australia which is held safely by a company regulated under the Australian financial market regulator APRA, where there is next to no risk of your investments going missing.

Another risk is around the fact there are a large number of crypto exchanges that are based out of foreign countries, which can mean that if something goes wrong it can be hard to chase down your cash.

Crypto is bought and sold on an ‘exchange’ which is largely unregulated. Picture: iStock

The final main risk is the threat of hacking given the currency is entirely digital. This risk is amplified by the fact data (from trend watchers like Cardify) shows over a third of crypto investors don’t fully understand the technology. This particular risk is very real, and one you should manage if you’re thinking about joining the crypto buyer’s club.

Where cryptocurrency fits in a smart investment portfolio

Even with the above risks, there’s little doubt there are investment opportunities in the crypto market, with long term crypto investors being well rewarded for their support.

The fact there is limited supply of bigger cryptocurrencies like Bitcoin and Ethereum, coupled with the accelerating broad adoption by big players suggests strong upside potential in the coming years.

That being said, if you want to be smart and to be able to sleep at night, it’s important you understand where crypto fits in your investment portfolio.

A big part of answering this question goes back to understanding your risk appetite, what sort of investor you are, and who you have supporting your investment decisions.

If you don’t have a high risk tolerance, if you’re the sort of investor who can fall into the hard-to-avoid herd mentality, or if you don’t have an investment or financial adviser to help you make smart decisions, you might want to reconsider whether crypto is for you.

But if you have your bases covered, understand the risk, and have some good support my view is that there is a role crypto can play for smart investors.

The wrap

Crypto is an investment that’s constantly in the spotlight, and with that attention there’s increasing interest from crypto investors, and potentially a bunch of money to be made. But investing into cryptocurrency also comes with risk, so if you’re thinking about getting involved, do your research before you jump in.

Ben Nash is a personal finance and investing expert commentator, financial adviser and founder of Pivot Wealth. Ben is also the Author of ‘Replace your salary by Investing’ and ‘Get Unstuck’, and runs regular free online money education events, check out all the details and book your place here | Instagram | Facebook | Podcast.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.