In the last year, the value of cryptocurrencies as an asset class has more than doubled from $203billion to over £500billion, with the price of BTC increasing from approximately $7,000 to over $17,000. According to research, there are now over 100 million Bitcoin wallets, with the number of wallets active each day being typically 1million and the number of wallets holding 100+ Bitcoins reaching over 16,000 in October 2020. However, possibly more interesting is that the ownership or use of crypto is global, as reported by Statista, with citizens from Nigeria, Vietnam, South Africa, Turkey, Peru, Spain, and China being more engaged with this asset class than in the US.
How common is crypto? % of respondents who own or use crypto
Interestingly, it is not only individual citizens who are increasingly turning to cryptocurrencies but institutional asset managers too, with Coinbase reporting that its institutional clients have increased their crypto holding from $6billion to $14billion since April 2020. Firms such as Pendal Group in Australia claim to be investing in Bitcoin as an alternative to gold. Highly regarded investors are singing Bitcoin’s praises, including Paul Tudor Jones, Bill Miller, and Stan Druckenmille. The latest institution to express an interest is Guggenheim Partners, which manages over $275 billion and has filed documentation with the SEC to potentially invest $500 million into Bitcoin. Indeed the CEO of PayPal claiming that Digital currencies are: “use of digital currencies is set to go mainstream as more merchants take a ‘digital first’ approach to payments.”
As with any investment, unless you have a crystal ball, knowing when to buy any asset is difficult to predict, so an alternative way is to save a regular amount each month. This concept of regular savings (sometimes referred to as pound cost averaging) is ideal for more volatile assets, i.e., those assets whose price ‘zigs and zags’ (goes up and down a lot!) Putting money aside on a regular basis enables one to smooth out these ups and downs, buying more of the assets when prices are low and less when prices are high. By investing $10 a week every week over the last year, your $530 of savings (ignoring fees) would now be worth $1,138, a profit of 114.75%! This can be compared to investing the same amount into gold, which would be worth $556, or the US Stock Market (as measured by the Dow Jones index) which would be worth $598.
The result of regular saving into BTC, gold, and the US Stock Market (Dow Jones)
Assumptions- $10 saved per week, no costs
Despite some claims, no one knows what will happen to crypto’s prices, but they certainly seem to be gaining more and more demand from private clients and institutions alike. There now exists a range of ways that investors can access cryptocurrencies which are much more user-friendly for private investors, such as debit cards linked to cryptocurrencies, funds, and even bank accounts. As for institutional investors, the challenges around custody and how they physically hold these digital assets are being addressed. A firm called Copper with offices in Hong Kong, London, New York, Moscow, and Singapore has a service called Loop that is designed for institutions that need to have a third party custodian to hold its crypto for its clients. While other firms such as Fidelity’s Digital Assets service also offer a custody service The speed of adoption is likely to further gather pace should the price of Bitcoin continue to rise over the next six months as it has in the last six months, especially if there is more stock market volatility as the ravages of COVID-19 are truly understood and priced in!