I recently read a survey report claiming nearly 10 million Britons owned cryptocurrencies.
This finding does not relate to my own experience. I run a small financial-planning practice in Banchory and none of my clients own any cryptocurrencies, as far as I am aware.
They are typically aged over 50 and invested in a very broad range of assets to provide diversification.
The most esoteric investment held by a handful of clients is an investment in physical gold.
Crypto ownership is not limited to a specific age group, however, research suggests younger people are more likely to own and use cryptocurrencies than older adults.
A study in 2020 found around 60% of users were aged 18 to 34, while only 18% were 50 or older.
Social media and “influencers” seem to be constantly endorsing cryptos as an investment opportunity.”
Why are younger people investing in cryptocurrencies? It may be because they understand the technology better than the older generation and see the benefits.
In my view, it is because they see it as a get-rich-quick scheme.
Social media and “influencers” seem to be constantly endorsing cryptos as an investment opportunity.
Let’s consider the potential positives and negatives of cryptocurrencies.
The pros:
- Decentralisation – they operate on decentralised networks, which means there is no central authority that controls the currency. This gives users more control over their own funds and reduces the risk of government interference.
- Security – cryptos use advanced techniques to secure transactions, making it difficult for hackers to steal or manipulate funds.
- Privacy – they provide a high level of anonymity, protecting users’ identity and transaction history.
- Accessibility – they can be used by anyone with an internet connection, regardless of their location or financial status. This is especially beneficial for people who do not have access to traditional banking services.
- Lower transaction fees – crypto transactions often have lower fees, compared to traditional banking methods.
The Cons:
- Volatility – cryptos are known for their volatile nature, with prices fluctuating rapidly and unpredictably. This can make them risky investments.
- Lack of regulation – they are largely unregulated, which can make them attractive to criminals and fraudsters. They do not offer investor protection if things go wrong.
- Limited acceptance – they are not widely accepted as a means of payment, making them less useful for everyday transactions.
- Irreversibility – once a cryptocurrency transaction has been confirmed it cannot be reversed. This can be a problem if a mistake is made or if the transaction is fraudulent.
- Energy consumption – “crypto mining” by computers requires a lot of energy, which can have a negative impact on the environment.
- The investment case for cryptocurrencies is weak. Unlike other forms of investment, such as bonds or shares, they do not generate any cash flows – such as interest payments or dividends – that can explain their prices.
- Values have tended to fluctuate widely, and depend more on speculation about their eventual adoption and use. The speculation creates volatility that undermines their value as a currency.
Cryptocurrencies: What are they, will they last and can they make you rich?
Warren Buffett, the billionaire US investor and chief executive of US conglomerate Berkshire Hathaway, has been known for his scepticism towards cryptocurrencies.
In 2014 he said: “Stay away from it. It’s a mirage, basically…the idea that it has some huge intrinsic value is a joke.”
And in 2018 he referred to Bitcoin as “probably rat poison squared”.
A few years later Mr Buffett said: “Cryptocurrencies basically have no value and they don’t produce anything. They don’t reproduce, they can’t mail you a cheque, they can’t do anything.
“What you hope is that somebody else comes along and pays you more money for them later on, but then that person’s got the problem. In terms of value: zero.”
Why not try to get rich slowly?
I would personally prefer to take investment advice from Mr Buffett than the latest TikTok influencer.
While get rich slowly does not have the same ring to it as get-rich-quick, it does appear to have worked out for the world’s most famous investor.
Mr Buffett has a net worth of more than £80 billion and is the world’s fifth-wealthiest person.
Paul Gibson is managing director of Banchory-based Granite Financial Planning.
