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On low-news days the media likes to chatter about the eye-popping gains being made in cryptocurrencies (such as BitCoin, Ethereum or Ripple). As you can probably guess we are somewhat sceptical about the merits of investing in these. Here are some observations:

  1. There’s no security – these are unregulated investments so you have no fall-back. You can buy Cryptocurrency CFDs (contracts for difference – an esoteric financial instrument), which can only be sold by regulated firms, but you can’t complain if your investment falls by 30%!
  2. It’s very high risk – off the charts as far as we are concerned. A rapid rise can be followed by an equally extreme fall.
  3. It is not obvious how much you are paying for the privilege of buying (or selling) cryptocurrencies – whether through the spread, the funding charges or in commissions – but you can be sure that it is a great deal more expensive than traditional forms of investment.
  4. And the fundamental question, why invest? What is the motive for chasing returns at such high risk?

If you do wish to invest in cryptocurrencies we would urge you to use only funds which you are content to lose. Anything on which you may possibly rely in the future shouldn’t go anywhere near these currencies.

David Flowers & Murray McEwan

4 April 2018


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