In April, the price of bitcoin exceeded 62 thousand dollars, but after the recent collapse it was at the level of 30 thousand dollars. Now this cryptocurrency is winning back its losses. A number of experts believe future growth records may be possible But novice investors should be wary of such an asset.
Specially for Rossiyskaya Gazeta, the head of the ICBF investment department, Aaron Chomsky, explained the dangers of investing in cryptocurrency and gave advice to novice investors:
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– The price records of cryptocurrencies nowadays can leave few people indifferent. The financial world is experiencing the emergence of a new asset class that can take a certain share in investment portfolios.
A few years ago, the skepticism of big players on Wall Street regarding bitcoin began to give way to interest and the desire to benefit from it by expanding the product line.
In the US, UK and a number of other countries where consumer protection standards are high, the purchase of cryptocurrencies is the lot of professional investors who have both experience and a significant financial cushion, while the path is closed for retail investors.
This year, the cryptocurrency market is eagerly awaiting the approval of the US Securities and Exchange Commission (SEC) to launch an exchange-traded fund based on the first cryptocurrency, which will remove the remaining barriers for retail investors. But the regulator is in no hurry yet. Although there is an example of neighboring Canada, where a similar instrument has already received the green light. The reason is high volatility.
The range of quotes for bitcoin and other cryptocurrencies is still excessive for the portfolios of ordinary investors. Values still exceed those of gold and other commodities that the first cryptocurrency is often compared to.
As an example, consider the situation after May 10th. For seven trading days, quotes fell by almost 30% and this is generally not bad (on March 12, 2020, the decline was 40% per day). Since the beginning of this year, bitcoin has grown by 125%. This is the price of the profit of those who invested in it. And if you add even more volatile and lesser known cryptocurrencies to this, then the potential scale of the problems becomes clear for those who are not experienced in how the markets function.
In addition to volatility, it is necessary to take into account the specifics of the cryptocurrencies themselves and the infrastructure. Not all investors will be able to deal with private keys and the functionality of wallets, which is fraught with a complete loss of funds, even without the participation of hackers.
There is also no guarantee that this or that cryptocurrency exchange will not fall victim to cybercriminals or that its organizers themselves will not disappear with clients’ funds, as happened recently in Turkey.
There are many nuances in investing in the cryptocurrency market. Therefore, for those who nevertheless decided to take this step, there are general recommendations.
For example, it is better to invest a small part of the capital (2-5%) without using “leverage” (borrowed funds) using a highly reliable intermediary (even easier through futures on the Chicago Mercantile Exchange from a licensed broker) with a willingness to lose it.
This makes it psychologically easier to respond to high volatility, while receiving insurance against losses in the event of the transformation of the current financial system, which is being pushed by its unprecedented fiscal and monetary incentives in leading countries.
With regard to the use of cryptocurrencies as a means of payment, the path can be even more long and thorny.
In Russia, as in many other countries, you can pay only in national currency. Regulators all over the world were deeply alarmed by the prospect of Facebook launching its Libra coin (now called Diem), which was supposed to be pegged to a basket of several reserve currencies.
This would threaten the loss of monetary sovereignty and disruption of the banking sector. Such concerns have become the reason for the intensification of the study of the launch of national digital currencies (CBDC), including in Russia (digital ruble).
It is this digital form of the national currency that will be allowed for payments in the future. In some countries, cryptocurrencies can still be used to pay off, and the number of companies that are implementing such options is actively growing. But often the point of sale does not receive digital assets, but the same dollars or euros after conversion in accordance with the law.
