cryptocurrency

Cryptocurrency volatility is not necessarily a bad thing – but it could be if your investment decisions are driven by the whims of celebrities like Elon Musk.

This is the word from Nigel Green, chief executive and founder of deVere Group, as bitcoin, the biggest cryptocurrency by market capitalisation, regains some ground after falling to a four-month low.

The price of bitcoin dropped by nearly 30% on Wednesday from the day’s early highs, before clawing back losses of 8%.

The dramatic swings come as China warned about the usefulness of digital currencies, which subsequently prompted a tweet by Tesla founder Elon Musk indicating that his electric vehicle firm was continuing to hold bitcoin (it bought $1,5-billion of it earlier this year) for the long term and would not be selling its position.

Green says: “The so-called ‘cryptocrash’ is creating a lot of noise, but volatility in the cryptocurrency market should be treated in the same way as turbulence in any other market.

“As with any type of investing, the investor’s best tool in order to sidestep potential risks and take advantage of opportunities that arise in times of market volatility, is diversification.

“Cryptocurrency investors should ensure they are diversified across the principal digital tokens, for example Ethereum, and as part of a wider investment portfolio of assets, sectors and regions,” he adds.

“Some of the shrewdest investors have consistently utilised market volatility as major buying opportunities in traditional financial markets – and the cryptocurrency market should be no different.”

However, Green says that when the volatility is driven by one celebrity enthusiast, investors should exercise caution. “When used effectively and efficiently, volatility can be an extremely powerful investment strategy.

“But I would urge investors not to be driven by any one influential advocate, such as Elon Musk, whose whims and moods can trigger dramatic swings in both directions.

“Sound investment decisions are not made on hype and hysteria from one celebrity enthusiast on social media, rather time-honoured fundamentals such as diversification, sensible valuations and profitability.”

Editor@tech-talk.co.za

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