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With Cryptocurrencies grabbing all of the media headlines, what are they and how will they affect me?

By January 11, 2023January 25th, 2023Articles

With Cryptocurrencies grabbing all of the media headlines, what are they and how will they affect me?

With Cryptocurrencies grabbing all of the media headlines, what are they and how will they affect me?
Cryptocurrencies (Crypto) are digital, decentralized currencies without a central governing body. Crypto was believed by fanatics to be the future of currency and would coexist with traditional fiat currencies such as USD and SGD.

Crypto has increased in value at an unprecedented rate. For example, Bitcoin (BTC) had an average annual return of 1,576% from 2010 to 2021. Compared to Apple stock with an average return of 35.54% from 2010 to 2021.

But 2022 is the year of Crypto Winter, where the overall value of Crypto came crashing down. Due to factors such as the Fed’s interest rate hikes, increasing rates of inflation, and the Ukraine war, investors moved towards safer instruments such as bonds. Recently, the fall of LUNA and FTX made many lose confidence in Crypto. Even BTC lost 65% of its value.

Crypto, unlike stocks, lacks fundamentals and is usually not backed by significant assets. For example, Apple stock is relatively more stable because Apple as a company has assets such as iPhones, which through sales transactions fulfill a want for human beings.

While some Crypto coins have differentiating features such as Ethereum, providing a service called Smart Contracts, allowing participants to transact with each other without a trusted central authority, it is not widely used due to its complexity. Crypto is also not widely used as a currency, unlike USD/SGD due to its extreme volatility. See “El Salvador“.

Because no one can determine if Crypto would reach widespread adoption or if it’s just another bubble, I advise my clients to either avoid crypto or allocate a maximum of 5% of their portfolio into Crypto due to the extreme volatility and the chance of their deposit going to 0. Also, please do not forget the password of your Crypto Wallet!

This article is not financial advice, do your due diligence!

  • Crypto was thought by many to eventually co-exist with normal fiat currencies
  • The value of Crypto Skyrocketed from 2010-2021
  • However, due to events in 2022, investor confidence in Crypto fell and its value plummeted
  • I advise my clients to allocate a maximum of 5% of their portfolio into crypto or avoid it altogether

Bryan Cheong
Financial Services Consultant