Video Transcript – Investment in crypto assets

Unlike conventional investments where your money goes to purchase standard financial assets such as shares in companies and bonds issued by companies and governments, investment in cryptocurrencies means that your money goes into buying a set number of units of the relevant cryptocurrency. Shares have an underlying value depending on the profits made by the companies that have issued the shares, the share is essentially a right to share into the profits of the issuing a company and also enable the owner (the fund not you) to vote for the directors of the company.

A bond is effectively a debt so it represents money borrowed that will be returned by the issuer with interest. So, in both cases, there is underlying economic value. Cryptocurrencies as simple tokens with no underlying value. This is why their market price depends purely on speculation (if people believe the value will go up or down) and is extremely volatile. There is no reason to assume that if you buy 100 units of a crypto today the value will be higher in 20 years’ time. It might be but it may also be lower or close to zero. Whereas there are strong reasons to expect that a conventional fund will grow in value in 20 years’ time.

In other words, don’t be tempted to put your money in crypto. You are buying thin air that can only go up in value because others have been fooled into believing that it will go up in value. Even if you manage to make a profit out of a single trade (you bought cheaper and you sold it for more) if you play this game a few times, you will not make any gain unless you are extremely lucky. So, it is gambling not investing. If you invest in crypto the law and regulation will do nothing to protect you with the exception of requiring the firm to give you clear warnings. Here is the Financial Conduct Authority’s guidance about crypto for retail investors: https://www.fca.org.uk/investsmart/crypto-basics.