As sales pitches go, it’s an unconventional one. In fact it’s more warning than advert, but you can’t argue with the logic behind it.
The tweet was as stark as it was short: “Cryptocurrencies are still a new and hyper-volatile asset class, and could drop to near-zero at any time.”
So wrote Vitalik Buterin, the 24-year- old Russian ‘boy genius’ and co-founder of Ethereum, the world’s second best-known cryptocurrency.
His extraordinary assertion was accompanied by the very sage counsel that investors in Ethereum should only put in money they can afford to lose.
De facto asset class
While many would take issue with the description of cryptocurrencies as an asset class, it’s hard to deny many people are buying them for the sole purpose of turning a profit.
Many City institutions still refuse to recognise cryptocurrencies as an asset class, but they are arguably becoming de facto assets because increasing numbers of investors are treating them as such.
Nevertheless, Infinox does not offer trading in cryptocurrencies because of their highly-volatile nature and the fact that they are not backed by any government or central bank at present.
Just look at the way Bitcoin has plummeted in value. Before Christmas the best-known cryptocurrency was worth close to $20,000. Now it is worth half that.
That’s still significantly higher than Bitcoin was worth this time last year – so if you bought at the start of 2017 and sold now you’d still make a tidy profit.
But the inherent instability in the price of cryptocurrencies is troubling and exposes trading platforms and their customers to very real dangers.
The fact that such a prominent figure in the crypto industry has admitted such danger exists should be welcomed. But it shouldn’t come as a huge surprise either, given the fortunes of Ethereum. The cryptocurrency was priced at less than $1 last year. Now it’s sitting at about $930, after hitting a high of more than $1,300 before a dramatic crash saw its value nearly halve.
This column has warned about the dangers of cryptocurrency investment before.
That’s not to say investors shouldn’t be bold or that cryptocurrencies in and of themselves are a bad investment. Their potential upside means they may prove a very good investment indeed.
But the advice Mr Buterin offered on Twitter was ultimately very sensible. You could apply it to any investment: If you can’t afford to lose it, don’t risk it.
To find out how INFINOX Capital can help you reach your financial goals, visit www.infinox.com.