Cryptocurrencies have gripped the financial press for several years, with headlines focusing on fortunes made and lost in the space. This kind of coverage often ignores or even downplays the considerable benefits that cryptocurrencies may bring to the global financial system. Despite the media attention, they remain a mystery to many investors, from large institutions to individual households. Here I’ll provide a brief introduction into what cryptocurrencies are, why they’re important to the future of finance and why you should consider adding crypto exposure to your well-balanced portfolio.
What is a cryptocurrency?
At its most basic, a cryptocurrency is a digital currency that is secured by a distributed network of globally dispersed computers. This represents one of the key benefits of cryptocurrencies; this decentralization means there is no central bank involvement and no government entity holds control over it. The decentralized network is connected through an open-source technology called blockchain, which serves as a distributed ledger that is secured by strong encryption, called cryptography. In 2009, Bitcoin became the first cryptocurrency every launched on blockchain technology. While Bitcoin remains the largest, most valuable and best-known cryptocurrency, there are now over 10,000 cryptocurrencies available (source & chart: https://www.statista.com/statistics/863917/number-crypto-coins-tokens/). Some you may have heard of, such as Ether, Dogecoin and Litecoin. It is believed that the top 20 cryptocurrencies comprise up to 90% of the total market value. (Source: https://coinmarketcap.com)
Why is crypto important to the future of finance?
One of the most disruptive technologies since the advent of the internet, cryptocurrencies supported by blockchain technology will revolutionize financial services in the same way the internet changed how we gather and share information.
The technology will allow for faster, more efficient processing of payment transactions, insurance contracts, mortgages and loans, all without the need for a trusted third party, like a credit card issuer, insurance provider or bank.
The move from relying on the centralized financial infrastructure that we’ve all become so familiar with, to one that is decentralized will introduce new risks to personal financial planning. A greater awareness of the security of your financial transactions will be required as the trusted intermediary you’ve relied on in the past will no longer be present in future transactions. Maintaining records and safekeeping of your digital transactions will be of paramount importance. And this is just the beginning.
Why should you consider adding crypto to your portfolio?
Early cryptocurrency investors have already generated impressive returns and while we don’t hear about these stories too often, given the volatility, some have also lost. We are still in the very early stages of this financial revolution and while past performance is no guarantee of future returns, we remain bullish on the future of the cryptocurrency.
Unlike our existing financial services infrastructure, which is constrained by geography, regulation and centralization, crypto is global, open access and transparent. This allows for easy development of new applications that function seamlessly across the network and around the world. In future posts we plan to address how to value cryptocurrencies, illustrate where they belong within a balanced portfolio and the risks of investing.
The products and services offered by Arxnovum are available to qualified investors in certain provinces and territories of Canada. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. All investments contain risk and may lose value. Investing in the cryptocurrency market is subject to risks. Cryptocurrency, often referred to as “virtual currency” or “digital currency”, operates as a decentralized, peer-to-peer financial exchange and value storage that is used like money. Cryptocurrency operates without the oversight of a central authority or the banks and is not backed by any government. Even indirectly, cryptocurrencies such as bitcoin may experience high volatility, and related investment vehicles may be affected by such volatility. Cryptocurrency is not legal tender. Federal, state, provincial, territorial or foreign governments may restrict the use and exchange of cryptocurrency, and regulation in North America is still developing. Cryptocurrency trading platforms may stop operating or permanently shut down due to fraud, technical glitches, hackers or malware, which could have an adverse impact on the net asset value per unit of the Fund. Please consult the Funds Term Sheet for a complete list of risks. Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Arxnovum Investments Inc. and the portfolio manager believe to be reasonable assumptions, neither Arxnovum Investments Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.