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Crypto coming of age in Australia
Investors well aware of volatile nature of asset but motivated by desire to build wealth
The Asset 15 Sep 2021

A growing number of Australians are investing in cryptocurrencies as the fast-evolving digital asset continues to draw interest from the public. The total value of cryptocurrencies in circulation globally is estimated at more than US$2 trillion.

Institutional investors such as J.P. Morgan and Goldman Sachs are helping drive the market’s rapid growth. Just over half of global institutional investors (52%) recently surveyed by Fidelity Digital Asset say they have invested in digital assets, with seven in 10 institutional investors saying they expect to invest in the future.

In Australia, cryptocurrency exchange BTC Markets (BTCM), launched in 2013, now has over 325,000 Australian clients who have traded over A$17.1 billion (US$12.53 billion) on its platform.

In its inaugural investor report (FY2020-21), BTCM says more women and older Australians are investing large amounts in cryptocurrency, breaking the stereotype that traders are mostly younger males. Its data show that almost one in four of today’s crypto investors are over the age of 44. The report also cites increased activity from female investors, with a 172% growth in new users, compared to 79% growth in male investors.

The survey also finds that the number one motivation for Australians investing in crypto is to build wealth (70%), followed by a third (34%) looking to retire early and for portfolio diversification (28%).

 

Source: BTC Markets

Fear of missing out

Just one in five respondents confirm their biggest driver is the fear of missing out on this emerging asset class, while a smaller proportion also rely on cryptocurrency for short or medium-term goals such as paying down debt (12%), holidays (6%), or starting a business (4%).

BTC Markets chief executive officer Caroline Bowler says this indicates a longer-term investment timeline whereby Australians are looking to cryptocurrency to build and provide for their future, rather than using it as a “get rich quick” investment.

Source: BTC Markets

“It’s worth noting that cryptocurrency investments are being used for overall portfolio diversification. This is a role traditionally held by alternative assets such as Reits, hedge funds, art, precious metals such as gold, and other collectibles,” Bowler says.

“This indicates that cryptocurrencies are coming of age in playing an increasingly important role as an alternative asset in the portfolio construction process.”

Defying perceptions that the average cryptocurrency investor is reliant on the latest social media feeds to drive their investment strategy, a majority (57%) of crypto investors research the project’s whitepaper and its community strength and engagement, when deciding which crypto to invest in.

Less than 10% cite influencers or social media tips and just 8% confirm tips from family, friends and colleagues as the most important factor driving their crypto investments.

Market volatility

The biggest challenge that investors say they face when investing in cryptocurrency is market volatility (48%). This is followed by information overload around too many cryptocurrencies and not knowing who to trust, at 33%. A lack of understanding of the tax treatment of crypto investments is at 32%.

Source: BTC Markets

When asked how they would react if they woke up tomorrow to discover their crypto investments had dropped by 20%, 63% of respondents say they would take it onboard as “a risk I understood” and would leave investments untouched, expecting performance to improve.

This highlights the fact that many investors are well aware of the volatile nature of the asset class, BTCM says. In fact, 28% say they would take advantage of a 20% dip and invest more funds.

Investors’ long-term expectations for the asset class further confirm their understanding of its properties, with more than half (51%) saying they expect its performance to be volatile with extreme highs and lows.

Confusion around the tax treatment of cryptocurrency is to be expected given the complexity and rapid growth of the industry, BTCM says. Developments such as staking or determining the true nature of an asset disposal (such as a transfer between accounts) can further muddy the waters.

Need for regulation

Further building the case for regulation of cryptocurrency in Australia, is the fact that more than a quarter of respondents (28%) say that a lack of regulation in the industry is a challenge when investing, the study finds.

Bowler believes there is a clear avenue for financial advisers, tax lawyers and accountants to lift their game in getting acquainted with the nuances of crypto – not only for their own business, but also for their clients.

“In order to stay relevant to this investing cohort, it is time for professional services to catch up with the comfort levels of these investors, rather than waiting for them to be convinced of the benefits of more traditional investment assets,” she states.

While financial advisers may be investing in digital assets in a personal capacity, regulation prevents them from supporting their clients who are doing the same, as cryptocurrency is not considered a financial product in Australia.

“This lack of professional financial advice can be conducive to investors falling prey to unscrupulous scams and ‘Finfluencers’ if they don't do their due diligence.”

Once crypto becomes a regulated financial instrument, Bowler says, investors and their advisers would likely gain greater confidence about operating in the crypto sector. “In the meantime, educating professional services will be crucial,” she stresses.

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