We’ve already mentioned here that the bitcoin is increasingly approaching to become a store of value and means of protection against cyclical crises. In addition, it is an asset that can be used to enable trading and speculation. But what is the ideal share that the investor should put in cryptocurrencies? In order to get that answer, we talked to the Head of Investments at Transfero Swiss, Carlos Franco Russo:
Why an investor should have bitcoins (or other altcoin) in his investment portfolio?
Primarily, it is important to say that when an investor buys a cryptocurrency, he is highly optimistic that it is a new asset class that will become dominant in the near future. However, we need to diversify. Although the bitcoin must always compose most of the portfolio in crypto, it’s interesting to have other cryptocurrencies.
Considering that it is a very volatile market, which should be the percentage of cryptocurrencies in the investor’s wallet?
It depends on the level of risk appetite of each particular investor. There is no risk-free return, and the risk, in technical terms, has to be related to volatility. Historically we know that the bitcoin and other cryptocurrencies have an expected return far above average. And this should continue in the coming years. Obviously, this return comes at the cost of great volatility. Yet, the investor has to know that once exposing to this asset class, there will be moments that the losses may reach 80%, 90%.
What should be the ideal time period aimed by the investor to receive return on the cryptocurrencies?
Until now, every investor who entered this market and waited for at least three years had recovered that initial investment, even when starting in periods of historical rates. And if he’d waited for at least five years, he multiplied the investment for five, ten times. So, the investor must aim a period of three to five years when investing in this asset class.
What is the main difference between investing in the stock market and in bitcoin?
They are completely different assets. A share in the stock market has an intrinsic value, which is the present value of the future cash flow of the company. On the other hand, the bitcoin has no intrinsic value, it is dependent on supply and demand. Therefore the bitcoin is more like a commodity, such as oil, for example, although it has some differences.
Does it make more sense to be exposed to the cryptocurrencies rather than the stock exchange?
On an investiment viewpoint, today it makes a lot of sense to be exposed to the cryptocurrencies’ asset class. In very long term, and I’m talking about 100 years, it is better to be exposed to the stock market rather than the cryptocurrencies. But as we are in a historical moment in which the cryptocurrencies are gaining increasing relevance and the returns have been very high, it is still wise to have a portion of your portfolio in cryptocurrencies.
+ Read also: Is the marketcap of cryptocurrencies overestimated?
How to know the ideal entry point in this market?
There are some indicators that show whether prices are accelerating. One of them is the proximity to the halving. For example, if the bitcoin just passed by a halving and it is in a cycle of price acceleration in the last 18 months, rising consistently, that is an indicator that it might fall at any time. Yet immediately after a break of a high cycle it is not a good time to invest because it will probably continue falling. Finding the right moment is difficult. The best time to invest is when we can identify a moment of reversal. For instance, when it hits a bottom and gets 100% of that value. It’s a sign that it had reversed the trend. This is an excellent time to get in because it will come at a time of high in the next 12 to 18 months.
Transfero has different investment approaches
Transfero Swiss is a company focused on administration and management of investment in digital assets – considered the newest class for asset diversification. Today we have three main strategies that vary the approach and the risk profile of the portfolio. Our consultants can help you in allocating the option that best fits your style. Schedule a meeting.