Investing in Cryptocurrency: Know the Rules of the Game

Last week’s FinTech Festival gave us some insightful commentary on the risks and rewards of digital currencies from Jodie Gunzberg, Managing Director at CoinDesk Indices.

Cryptocurrency is an emerging asset class that is increasingly showing its value as part of a financial portfolio. Consider the following pieces of essential information from Jodie when debating whether or not to enter the game of investing in digital currency: 

Understand the Risks and Rewards

Massive returns have generated major interest as investors seek high return potential from assets that can diversify risk. For instance, one-year returns for Bitcoin outperform equities by at least 30%. But, that doesn’t eliminate risk entirely. Bitcoin on average carries about 80% risk compared to only 10% to 15% risk in traditional equities. 

When looking at the big picture behind investing in cryptocurrency, Jodie points out three major risks of crypto:

• Market Risk: Adoption risk facing any new technology.
• Technology Risk: The risk that the underlying technology will break.
• Regulatory Risk: Regulatory risk receives the most attention, but its nuances are often poorly understood. The need for regulatory clarity is important now to ensure the  infrastructure is built for compliance. 

Do Your Homework

With digital currency, you’re looking at an investment that is constantly evolving and has a lot of emotion behind it. Here are some guidelines that can help new investors navigate this new territory:

• Limit the investment and consider it speculative.
• Diversify to a basket of digital assets beyond bitcoin.
• Do your homework on the details of products, including ones that have equities, derivative structures, and single assets.
• Look for managed volatility products.
• Learn from credible sources.

Be sure to watch the full replay of Jodie’s presentation from FinTech Festival LIVE and other keynotes from the event.