Four thoughts on cryptocurrency in 2021 and beyond

Some cryptocurrencies have experienced a surge in value (and interest) since the pandemic. However, there’s a long way to go before it becomes clear how to determine their fundamental value.

Even the Reserve Bank is talking about cryptocurrency, having announced late last year it is exploring the potential use and implications of a wholesale form of central bank digital currency.

This came as popular cryptocurrencies, like Bitcoin, experienced huge surges in value in 2020.

This may have been spurred on by fears of a drop in the value of traditional currencies if inflation picks up and then the sheer force of momentum as more and more buyers jumped on the bandwagon.

Some of the figures related to cryptocurrency are stunning – both the gains and losses – and some investors have seen very good gains after buying in early on.

However, there remain some fundamental risks and considerations:

Value:

This is the thing which, in our view, remains a biting issue for cryptocurrency: it’s very hard to value. It’s not like shares, like copper, like cash – we still don’t wholly know what drives its value over a long period of time.

Income:

Although some may claim otherwise with the use of a bit of fancy financial engineering, Bitcoin and other cryptocurrencies do not generate income directly.

That also makes it hard to value them and adds to the potential for speculative booms and busts.

Supply:

When taken together, the supply of cryptocurrencies is unlimited. This makes them less reliable than traditional paper money in advanced nations, where supply is managed.

Stability:

We can be reasonably confident that the A$50 we carry in our wallet or purse today will roughly hold its value by the time we spend it.

So far, the same can’t be said of some popular cryptocurrencies which go up with gusto but also come down sharply at times making it very hard to know what buying power they have.

That said, it’s clear digital currency does have a future, especially when you start to see central banks and major financial institutions taking an interest.

However, it’s hard to know what form that will take.

As with everything related to markets, we think it remains important to turn down the noise, consider the investment fundamentals and make sure you fully understand what you are getting into before joining a growing investment crowd.

 

Source: Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist, AMP Capital

 

 

Discover the benefits of a privately owned Licensee.

DOMINIC BENTLEY

CWP Wealth

“I have been with Capstone for over three years and have found them refreshing to deal with. They help you become the best version of your business. I can wholeheartedly commend Capstone to any planner.”

PAUL BRONSON

Bronson Financial Services

“At a time of industry upheaval, the support of Capstone has been a godsend. Everything they promised they delivered.If you are looking for a new licensee you cannot beat the Capstone service offering."

JASON DUDENAS

Canyon Financial Planning

“Capstone Financial Planning should be at the top of your list for a Licensee. Grant and his amazing team give a down to earth and personalised approach to supporting practices.”

MORGAN COLLINS

Lane Financial

“Capstone have some of the highest quality individuals in their team and it’s a pleasure to benefit from their insight and assistance. We really can’t recommend them enough to anyone considering a licensee.”

HELEN STEVENSON

Strategic Retirement Solutions

“I recommend Capstone to any adviser seeking to 'go out on their own'. They are a fabulous licensee!”

BOB CHEN

Everalls Wealth Management

“With Capstone I can operate my business free from conflict. They have no in-house products, a flexible APL, and an extensive list of SMA solutions. I recommend Capstone highly.”

JEANETTE SCHRAM

Nett Assets

“I can highly recommend Capstone for planners seeking an independent licensee that’s not in your face but provide quality support services. Their service and support is second to none and has allowed us to concentrate on providing our clients with a premium level of service.”

BEN DREW

Paradigm Principle

“Having been with Capstone for a number of years, one thing that really stands out is their willingness to help and can do attitude. These are qualities we really appreciate.”

JOEL BONES

IEC Advisory

“The team at Capstone are all genuinely really good people. They are remarkable with their service culture. They really do care what you think, and they are genuine about our joint success into the longer term.”

BEN MARSHALL

Benchmark Financial Planning

“During times of change, it has been reassuring to be with a licensee that regularly engages with advisers and takes feedback seriously.”

FIND A CAPSTONE ADVISER

PROUDLY ASSOCIATED WITH