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Self Managed Super Funds (SMSF)

Four thoughts on cryptocurrency in 2021 and beyond

By Dr Shane Oliver
Head of Investment Strategy and Economics and Chief Economist, AMP Capital Sydney, Australia

Some cryptocurrencies have experienced a surge in value (and interest) since the pandemic. Still, for me, there’s a long way to go before it becomes clear how to determine their fundamental value.

Even the Reserve Bank is talking about cryptocurrency, having announced late last year it is exploring the potential use and implications of a wholesale form of central bank digital currency1. This came as popular cryptocurrencies, like Bitcoin, experienced huge surges in value in 20202. This may have been spurred on by fears of a drop in the value of traditional currencies if inflation picks up and then there sheer force of momentum as more and more buyers jumped on the bandwagon.

Some of the figures related to cryptocurrency are stunning – both the gains and losses – and some investors have seen very good gains after buying in early on. For me though, there remain some fundamental risks and considerations:

  1. Value: This is the thing which, in my view, remains a biting issue for cryptocurrency: it’s very hard to value. It’s not like shares, like copper, like cash – we still don’t wholly know what drives its value over a long period of time.
  2. Income: Although some may claim otherwise with the use of a bit of fancy financial engineering, Bitcoin and other cryptocurrencies do not generate income directly. That also makes it hard to value them and adds to the potential for speculative booms and busts.
  3. Supply: When taken together, the supply of crypto currencies is unlimited. This makes them less reliable than traditional paper money in advanced nations, where supply is managed.
  4. Stability: I am reasonably confident that the A$50 in my wallet is going to roughly hold its value by the time I spend it. So far, the same can’t be said of some popular cryptocurrencies which go up with gusto but also come down sharply at times making it very hard to know what buying power they have.

That said, it’s clear digital currency does have a future, especially when you start to see central banks and major financial institutions taking an interest. However, it’s just hard to know what form that will take. And as with everything related to markets – I think it remains important to turn down the noise, consider the investment fundamentals and make sure you fully understand what you are getting into before joining a growing investment crowd.

You can learn more about Shane Oliver’s views on cryptocurrency in his most recent webinar with our senior economist, Diana Mousina. 

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Dr Shane Oliver, Head of Investment Strategy & Chief Economist
  • Economics & Markets
  • Investment Insights
  • Opinion
  • SMSF News
  • Self Managed Super Funds (SMSF)
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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

 

This article is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.

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