Cryptocurrencies ‘not an investment-grade asset’
The lack of regulation in the cryptocurrency market means investors and potential investors would be better off steering clear of such assets, according to a market analyst.
Dale Gillham, Wealth Within’s chief analyst, has expressed his concern around what could happen if Australian financial advisers follow the trend being seen in the United States whereby advisers are placing cryptocurrencies in the portfolios of their clients.
Reflecting on a survey that came out of the US, Mr Gillham said the results indicated that 6 per cent of advisers had an allocation of crypto assets in their clients’ portfolios, while 45 per cent of advisers were open to the idea of placing cryptocurrencies in their clients’ portfolios in 2020.
“Call me old fashioned, but those figures really concern me because cryptocurrencies are largely unregulated, and they are certainly not an investment-grade asset,” he commented.
“It surprises me to hear that financial advisers are recommending these products when they are supposed to be the voice of reason by ensuring clients invest wisely and safely.”
In his experience, the chief analyst said that “those who invest in cryptocurrencies are chasing the potential high returns that may eventuate with this type of product”.
“But as we all know, with high return comes high risk, and the majority do not do well managing this risk,” he continued.
Mr Gillham said that’s because those who do invest are largely unaware of the risks they are taking and, therefore, tend to make emotional decisions – “which results in poor outcomes”.
For those investors who do decide that they want to delve into the world of cryptocurrencies, the analyst noted, “it pays to be well researched and educated”.
While acknowledging that some individuals won’t agree with his comments on cryptocurrencies, Mr Gillham expressed that “right now, there are not enough safeguards to protect consumers if they do invest”.
This is why he said “advisers should be steering clients into safe traditional assets rather than bowing down to client demands”.