Crypto differs markedly from traditional asset classes in many ways, including the decentralised legal structures underpinning the tokens and highly controversial methods of valuation. A notable list of critics from Warren Buffett and Vanguard Group to local industry super fund UniSuper believes the asset class is not something to invest in because of the inherent volatility and prevalence of scams and cybercrime, among myriad concerns.
But clearly many investors are unfazed, given the Treasury data and the large number of people who do not own crypto but describe themselves as “crypto curious”.
Diversification rules
Galvin’s argument is that despite the unique characteristics of crypto investing, the old school rules of portfolio construction apply, including diversification.
And that means having an exposure to “altcoins” – the thousands of digital tokens other than the original bitcoin. Given many are in their very early stages, that is where the “alpha”, or ability to generate an above-market return, really lies, he says.
As a financial adviser, Cody Harmon says diversification matters, adding that doesn’t mean crypto investors need to go too far down the rabbit hole deploying their capital to obscure altcoins, which are sometimes disparagingly called “shitcoins” by critics.
That’s because ethereum, which, at a market share of about 20 per cent, is almost four times the size of the next biggest token tether, and is among the most important “layer one” blockchain ecosystems on which other tokens are built. Blockchain is the technology underpinning crypto assets – a networked public ledger that records transactions.
There is widespread confusion among investors about the difference between these “layer one” assets and other tokens, says Harmon, who runs the Cruz Family Office and takes an active interest in digital asset markets.
Some tokens such as ethereum, solana, terra, cardano and lunar represent separate and alternative…
