Cryptocurrency Bitcoin was back in the news on Wednesday after it surpassed the US$5,000 value mark for the first time in five months.
While the digital currency’s breakneck rise in value (it was worth around US$4,170 on Tuesday morning) has some in the market believing the glory days of crypto have returned, we’ve seen this before, along with the consequences when the downturn occurs.
While US$5,000 may seem like a large sum for an asset that few understand, it is still a far cry from the levels Bitcoin reached at the end of 2017 when it spiked to around US$17,000 before collapsing in 2018 to less than US$3,500.
The ‘landmark’ US$5,000 figure hasn’t lasted too long either, as by Thursday lunchtime, Bitcoin had dipped back to around US$4,950.
The massive swings in the value of Bitcoin would make most investors baulk at the idea of exposing themselves to cryptocurrencies and similar technologies, given the negative publicity surrounding them and the still-murky picture around both their technology and legal status.
However, there could yet be a place for them in portfolios.
George McDonaugh, chief executive of crypto and blockchain investment firm KR1 PLC (LON:KR1), has said that following Bitcoin’s dramatic rise and fall, the sector could be closing in on the bottom stages of the “bust” part of its cycle prior to renewed “fervour”.
He cites ‘chartists’ who have predicted a four-year sequence that begins with a year of gains followed by two years of declining prices, after which interest returns for the final year.
“Everyone is hunting down signs of a positive change in sentiment and there's money sitting on the side lines waiting for the starting gun.”
READ: KR1 sets up subsidiary in Gibraltar which it believes should provide “new and potentially significant revenue stream”
For investors to exploit this coming upswing, publicly-listed companies that specialise in blockchain and/or crypto assets would allow the investor to park their interest in a stocks and shares ISA, allowing a useful inroad into the sector without needing detailed knowledge of its ups and downs.
However, McDonaugh cautioned against “putting all your eggs in one basket” when investing in the area as trends in the price of assets may not always follow the same trajectory.
“It’s a mixture of where the project is in its life cycle, its success so far and how popular it is within the ecosystem.
“Currently the general direction of travel of all crypto assets is to follow the price of Bitcoin, but while the trend may be the same, the price movements of different assets can differ wildly. If Bitcoin doubled in price, there are some assets that may multiply by fifty times, the KR1 CEO said.
He added that it is “essential” to find a company with a portfolio that includes not only ‘base’ crypto assets like Bitcoin but also “bleeding edge” next generation tech that will be driven higher by a surge of investor interest.
“Projects like these often start behind closed doors with invited investors only. The kernel of the project is put together, the team, roadmap and funding plans all put in place. Often by the time the super early adopters have heard of it, the pre-seed round is long since over and most likely so is the seed/private round. One way to get in at the earliest stage is to invest in a company that does this.”
While these crypto asset investment firms may not be “easy to find”, McDonaugh says, they are “closer and more accessible than you think”.