Crypto Concerns: Is There Really Room for Older Investors?

Cryptocurrencies have had a tough year, facing heavy criticism after failing to live up to their billing as an inflation hedge and instead plummeting in value.

Market leader Bitcoin has fallen below €20,000 per token at the time of writing, after peaking near €55,000 in November 2021.

But a recent survey commissioned by WisdomTree, which launched three exchange-traded products last year, found that more than a quarter of adults aged 18-30 in the UK were invested in the asset class – a level similar to those who had invested money in stocks and ISA shares.

In the first of a two-part series, Citywire Selector sat down with Jason Guthrie, Head of Digital Assets at WisdomTree, and Ha Duong, Crypto Specialist at BIT Capital, to ask why younger people may have a greater affinity for the asset class and whether it extends beyond the UK.

A generation thing?

Guthrie (pictured) said the tech aspect of crypto was an attraction for young people, but there were other selling points.

“Young people come to invest their money in things they feel they have a connection to. There is the technological side, but there is also a greater promise of what crypto could offer.

“There’s the libertarian side of bitcoin that resonates with some people – the idea that it’s available natively and you can essentially have a lot more control over it.

“There are also discussions around creating a more inclusive financial services system. From a social point of view that resonates.

“The idea of ​​disintermediating large parts of the existing financial services system. Anti-Wall Street sentiment has been dragging on since 2008 and is definitely part of the community element of the larger crypto movement.

Guthrie said the real appeal of crypto was its eventual evolution into a more stable system, rather than its anti-establishment credentials.

“The idea of ​​a cheaper, more efficient, and more digital financial services system that could be built around blockchain and decentralized finance that works better for you, is more the sentiment that resonates with people.

“People want to see it become a stable technology and asset class. It’s going to take time, but the majority of people who invest in it realize that it’s a nascent technology. This is why people are happy to invest despite the volatility.

Fund margins

Duong, who manages two crypto-focused funds at BIT Capital, said the asset class can provide funding to people who might otherwise be left out.

“Some social groups may not have the same access to financial services as you and me, where it is very difficult, for example, to access a margin loan product.

“It’s especially the generation that grew up with computers and the Internet. Knowing that they can get different types of information and products online, they will find it only natural to also search for a margin loan from their computer, rather than going to a big bank.

Duong said Citywire Selector, as with other volatile asset classes, crypto was also more suitable for younger investors. “People who still have a long time to reach retirement may take on more risk in terms of their asset portfolio.

“If I was 60, I would probably want to invest in fixed income securities. If I’m 40, I can have a higher stock combination. If I’m 25, I can try crypto as part of my portfolio.

Still in beta phase

Guthrie and Duong drew parallels between cryptocurrencies and the internet in terms of technological development and maturity.

“The birth of the Internet dates back to 1994. Before that, the IT sector did not exist as a sector within the stock market and it grew by more than 30% in 30 years,” Guthrie said.

“Crypto adoption has followed a similar trajectory and it feels like right now we’re around 1998/99 when it comes to where the internet is. It won’t move exactly the same way, of course.

Duong said he views crypto as similar to a tech start-up that went public at a very early stage.

“He has venture capital like returns but with cash in the public market. You invest in start-ups, they are very volatile and they have a very high probability of failure but do not have a daily or hourly price chart.

“If you were to map the probability of success of an average startup and give it a daily price, it would be as volatile or more volatile than crypto. Ethereum and Bitcoin still consider themselves in the beta stage, not the alpha stage, of development.

He said he hoped crypto would mature as a technology over the next two decades.

“If you asked people in 1995 for a potential timeline of Internet applications, that would have been difficult too. Were you looking at things like Amazon and pets.com, or second-wave things like Airbnb and Uber that took another decade to form?

“It is still too early to think about all the potential that can come out of it. We’re at a stage where we’re trying to build existing products and value propositions that already exist in Web 2.0, Web 3.0 style.

“We have already seen billions in market value being traded for a small number of early adopters but, in the context of 8 billion people worldwide, this is still a very early stage.”

Different tokens, different uses

Duong said different coins have different uses, which is a key point for investors to understand.

“If you look at bitcoin, people tend to think of it more like digital gold, whereas if you talk about Ethereum, people tend to think of it more like a decentralized version of Amazon’s AWS or platforms. – Microsoft Azure cloud forms.

“If you think about those two value propositions, you have to evaluate them very differently,” he said.

He said this year has raised big questions about whether bitcoin will live up to its billing as a digital haven of wealth, like gold.

“People ask what exactly is the intrinsic value of bitcoin? It’s the same argument as with gold. Even though gold has some industrial and jewelry value, most of its value comes from its potential monetary premium as a store of value,” he said.

“In terms of bitcoin’s value as a potential inflation hedge, we’ve seen this year that this narrative hasn’t worked out very well.

“But we still have to remember that this is something that has only been around for a little over ten years. It is very difficult to assume that it can compete with something that has been used for millennia.