Cryptocurrencies emerge as best performing asset class of 2019
DURBAN – The past month’s bull run in the global cryptocurrency market saw the total market capitalisation of digital currencies increase by more than $100 billion (about R1.5 trillion).
The price of Bitcoin broke the $8 800 (R130 240) market, levels last seen in May 2018, and an equivalent 135 percent return since the start of 2019.
When contrasted with traditional asset classes like oil, gold and global equities, cryptocurrencies emerge as the best performing asset class of 2019.
According to Sean Sanders, co-founder of Revix, an investment platform that offers local investors exposure to over 85 percent of the global cryptocurrency market, there are a number of key developments behind this momentum as major players enter the space.
In the past week, Facebook announced “Global Coin” a planned payment token that will likely be utilised within the Facebook ecosystem. With over two billion users on various platforms, Facebook’s long-rumoured digital token is likely to gain traction, challenging payment platforms like PayPal, Amazon Pay, Google Pay and Apple Pay.
"Facebook is the gorilla in the room given their audience size, geographic spread and the resources they can devote to an educational drive. Facebook’s digital currency play will undoubtedly accelerate the global adoption and acceptance of digital currencies," said Sanders.
Positive cryptocurrency sentiment was further buoyed with the early May announcement by Fidelity Investments, one of the largest asset managers with $2.45trln assets under management, of a confirmed launch date for its bitcoin futures exchanges. This follows the formation of Fidelity Digital Assets in October 2018, spun out of the firm’s blockchain incubator.
Sanders said: "A bitcoin futures exchange adds further liquidity for crypto trading, while also signalling a greater institutional acceptance of this asset class. With such a significant player involved, we are likely to see greater investor involvement, ecosystem developments as well as increased conversations regarding regulations."
Cryptocurrencies are also gaining ground as a form of payment. Major US retail chains including Amazon’s Whole Foods, Starbucks, Nordstrom and Baskin Robbins, now accept Bitcoin and three other types of digital currencies to pay for goods at the counter.
Lastly, digital payments application Spedn launched a mobile cryptocurrency option which enables customers to pay for their coffee, groceries, movies and thousands of other items at major retail outlets in the US.
"While this application is still in early testing phases the promise of a thriving crypto-economy appears more likely than it ever did before," added Sanders.
With global stock markets losing serious value due to trade war escalations between the US and China, one of the benefits of investing in cryptocurrencies is their low correlation to more traditional assets like stocks and their outsized return potential as seen this year with near triple figure returns.
Investors need to maintain a diversified portfolio of traditional assets, but also consider allocating a percentage of their portfolio to alternative assets, including cryptocurrencies, which provide uncorrelated and asymmetrical returns. Typically investors tend to be over-concentrated in Bitcoin, which is a risky strategy.
"Taking a diversified approach to cryptocurrencies, like you would with stocks, has historically seen greater returns at a lower investment risk within this asset class. No one can predict which currencies will gain traction, and which will fall away, but it is clear that cryptocurrencies are here to stay," concluded Sanders.
BUSINESS REPORT ONLINE