Any asset class that involves complex technologies, faces an uncertain future and lacks the regulatory oversight needed to protect ordinary investors is bound to be fraught with risks. Here's how some experts suggest investors should navigate the tricky terrain.
Do thorough homework, make sure to gather as much negative and positive information as possible and reach your own conclusions. Unlike, say, tech stocks, junk bonds or gold, when it comes to cryptoinvesting, most financial advisors won't know any more than you do.
Start small and keep exposure to no more than 5 or 10 per cent of your portfolio.
Always treat it as an alternative asset.
Be prepared to live with wild price swings, bubbles and near-collapses until the entire class goes more mainstream. The small size of the market leaves it more prone to volatility and manipulation.
Investors with low risk tolerance should wait for the inevitable arrival of regulated market vehicles such as exchange-traded funds, the entry of blue-chip institutional money and improved liquidity.
Steer clear of initial coin offerings that don't come with a clear business plan and a product that makes sense. Right now, the big money is coming from a raft of new cryptocurrency hedge funds, venture capitalists, wealthy families and deeppocketed foreign investors, notably in China. They can afford the losses.
Don't worry about the fact that some of your fellow crypto-investors may be money launderers, tax evaders and other assorted criminals. They tend to be early adopters of financial technologies, as well as big risk-takers. The authorities will catch up to them without pulling the plug on an increasingly important global asset.
© The Globe and Mail
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