Pattie Lovett-Reid: Key questions to ask before investing in cryptocurrency


Bitcoin has hit new highs amid a broad-based rally in cryptocurrencies as the market as a whole inches toward a total crypto market cap of US$3 trillion.

In other words, cryptocurrencies are growing more and more popular, and becoming more mainstream. Companies such as MasterCard, PayPal, Square, Visa and many others recognize that Bitcoin and others will soon be critical to their payment infrastructure.

According to Alex Tapscott, managing director of the Digital Asset Group at Ninepoint Partners, “while there are plenty of exciting and high-growth cryptoassets, Bitcoin remains the 800 pound gorilla and is still by far the biggest contributor to the sector’s growth.”

The growth potential is huge. Tapscott sees cryptocurrencies as one of many new types of digital assets that are profoundly transforming financial services and the economy. Others include protocol tokens, governance tokens, non-fungible tokens and stablecoins, to name a few.

There are many who see Bitcoin as a hedge against inflation. While it is only a fraction of the size of the gold market — a more traditional hedge — the volatility is seen as a good hedging opportunity, as the market tends to bounce back fairly quickly during times of uncertainty.

The reason I bring all of this up is because one of the top questions I’m asked is if it’s too late to invest in this space.

I reached out to Brian Mosoff, CEO of Ether Capital, to help answer that question.

“It’s not too late for investors to get exposure to crypto before it becomes mainstream,” he told me. For retail investors who are new to the industry, he said he would encourage them to begin to understand the core value propositions of Bitcoin and Ethereum to help guide their investment decisions.

Fundamental to any investment is to do your research to understand what you are investing in and recognize your tolerance for risk. Be very clear on not only what you are prepared to lose, but what you can afford to lose.

If this is an arena you want to dabble in, I would argue for allocating a small portion of your portfolio initially, and investing only in the blue-chip assets that are more reliable and known, such as Bitcoin and ether. Mosoff reminded me that one of the biggest risks to new investors is jumping on the latest coin frenzy. Often, they turn out to be bad investments. We saw that recently with Squid coin, when the project’s founders suddenly decided to pull out and take investors’ money with them.

An investor might be better off getting exposure by way of ETF’s here in Canada, at least as a place to start.

However, it is still back to fundamentals. Consider: why are you investing in cryptocurrencies in the first place?

Mosoff believes potential investors should ask themselves if they are putting money into the market because they think prices will continue to rise and they can eventually cash out, or if it’s because they think that five years from now, these assets will be more accepted in society as payment method.

Depending on your response, it is important to remember that sharp market downturns happen all the time — so proceed with caution.

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