With today’s markets rollercoastering, is it time to rethink tradition?
Anyone with half an eye on the markets will know it’s been a volatile 12 months. Okay make it 24 months. Maybe 36. It’s been rocky, let’s put it that way.
A simplified snapshot from this very week and you’ll see big oil heading south after a year of unprecedented highs. The normally-stable BP dropped nearly 9% at the break of May, oh and meanwhile there’s a banking crisis playing out.
Bank of America is down 17% in the year-to-date. PacWest is down 45% in May alone, while Credit Suisse is flatlining 80% beneath where it was six months ago. On UK shores, NatWest is down over 5% year-to-date.
Big tech’s in transition, too. The turn of the year marked a series of new lows for Silicon Valley. In 2022, the tech-heavy Nasdaq lost roughly 30% of its value, and Apple saw nearly $1tr wiped off its share price.
So with traditional investments looking this sad and choppy, is it time to give cryptos a go?
Meet the cryptos
The word on the street is that cryptocurrencies are volatile but also, so say the hype-merchants, incredibly lucrative … if your luck’s in, that is.
With volatility defining traditional investments then perhaps cryptos don’t any longer seem riskier than, say, Microsoft. Plus, cryptos can make all your dreams come true … can’t they?
There are dozens of cryptocurrencies but we’ll summarise the recent performance of the two leaders – BitCoin and Etherium – and finish with a flurry on NFTs.
Bitcoin started life in 2010, and it peaked at nearly £49,000 in November 2021. It was a drug-of-choice in lockdown. But by June 2022, its value dropped 65% to £17,000 and in November 2022 it hit its floor of around £13,000. A small 2023 recovery is in progress, and BitCoin stood at £22,000 earlier this week.
Ethereum is different beast. If BitCoin is like digital gold – i.e. a store of wealth – then Etherium is an active currency used every second of every day. Etherium is the main network for transacting NFTs (more in a sec) but it too slid from its all-time-high of £3,600 to about £700 in summer last year. It has since climbed back to about £1,500 but remains vulnerable to high gas prices and new rival networks muscling in.
Non-fungible tokens (NFTs) – very basically they are pieces of digital art – shot-up in popularity during lockdown. A fair number of people were able to cash in and cash out big while momentum raged. But this market, too, bled out last year and only very strong NFTs have survived. Even those are worth pennies on the dollar versus two years ago.
Digital difficulties
There are several reasons to stay wary of cryptos. First is that cryptos aren’t mainstream ways to pay for goods and services — very few merchants accept it — so their main value is to other buyers and users of the currencies. It’s a shaky premise.
Also, there’s no history of stability there and while the highs are high they’re fleeting. Recent times show us the bottom can fall out pretty quickly.
There’s also security: BitCoin has been hacked before. Dozens of platforms now deal and trade in cryptos, and while reputable ones sink millions into security, others don’t.
On bush-league platforms, there is a risk of your crypto wallet being completely gouged. If that happens, cryptos’ lack of regulation and governance mean investors’ protection from financial authorities is limited.
Some recent news to end on, cryptocurrencies are so synonymous with shadiness and scams that the UK government is shortly set to extend a ban on cold calling to cover cryptocurrency products and investments.
Ups & downs, ins & outs
We said in the intro that markets are volatile. They’re hard to predict and, well, truth is they always have been.
We said that there’s a banking crisis but HSBC didn’t get that memo – they’re 22% up on the lows of last year. Lloyd’s, NatWest, JP Morgan … if you invested in any of them a year ago you’d still be substantially up.
It has been a nervy period for big tech: AI is a threat, the pandemic boom is over and jobs are going in their thousands. Nonetheless, Microsoft has climbed nearly 40% since dark days last year.
While we’re at it, Meta (+161%), Apple (+22%), and Amazon (+14%) have all gained in the six months since things got real. Apple might have lost $1tr in value last year, but you almost wouldn’t know it today.
Sure, this is all hindsight and that doesn’t help tomorrow’s investors. What may help is emphasising the old message that predicting the market is near-impossible. Shrewd investing is — you might say — a lot more boring than picking a crypto and praying that it soars.
Shrewd investing is playing not to lose. There’s a mantra that says you can’t pick winners so you have to buy the market. That means investing in a wide, balanced and diverse range of stocks in the hope you sweep up a few winners.
There is no ‘picking the winners’
Cryptos are wildcards. Unknowns. Crazy. Yes, they’re tempting and there’s a whiff of the get-rich-quick about them but it’s a bit like smoking the hopium.
If you’re contemplating crypto investments then the safest way is to do so as part of a wider strategy. If your crypto falls you have failsafes and balance built in. If your traditional stocks dive and your crypto soars high then happy days. It’s all about balance.
For most of us, successful investing — or rather avoiding unsuccessful investing — requires tremendous patience and a deep knowledge of investments. This philosophy doesn’t feel like it jives with cryptos, but it has to extend to them too.