Invest in Cryptocurrencies?

Cryptocurrencies are digital currencies that allow money to change hands without the involvement of an intermediary bank. Each account holder has the same ledger as everyone else, thereby eliminating the risk of fraud. The most popular cryptocurrency, Bitcoin, and the newer Ethereum, have enjoyed dramatic run-ups in value against the dollar since January, with reaching highs of 100% and 4,000%, respectively. They have since come down (see chart below: Ethereum 1-year from Worldcoinindex.com).

"The overall coin market has nearly doubled in value in two weeks and now exceeds $91bn, more than the market cap of Goldman Sachs."^1 Some of this demand can be attributed to the increasing desire to shelter assets from regime governments.^2

I’ve been asked about the investment potential in these currencies. It’s an unusual case, that’s for sure. Both Goldman Sachs and IBM are further developing the technology. I’d rather invest in the companies developing the technology behind the currency rather than in the currency itself. There’s still so much unknown about cryptocurrency. What will the regulatory environment look like? What about limits to supply and technical issues? Is there potential for money laundering? If you’re looking to build your wealth, or prepare for a distant (or sooner) retirement, then I’d advise that you limit your cryptocurrency investments and instead focus on a balanced portfolio of stocks and bonds.

^1: Financial Times: Initial coin offerings risk damaging your financial health (link)

^2: Financial Times: China probes bitcoin exchanges amid capital flight fears (link)