Cryptocurrency investors should know the risk spectrum of alternatives

Nick Raphaely, the co-founder and Chief Executive Officer, AltX

In the early 1600s, tulip fever swept across Holland.

A single bulb could be worth more than a mansion on Amsterdam’s grand canal. Everyone appeared to be making a fortune, and everyone agreed the price could only ever go up.

Until, inevitably, the bubble burst.

Just under four centuries later, four million Australians say that they are planning to invest in digital currencies in the next twelve months. And one in four Australians believes that cryptocurrencies are a good alternative to having an investment property.

Volatility of crypto puts them at the opposite end of the spectrum to investment properties.

In a recent example, investors in the fake Squid token lost everything after the value spiked more than 310,000% in November 2021. It was then revealed to be an apparent scam.

Nick Raphaely, the co-founder and CEO of AltX analysed this worrying trend.

“They were victims of a scam, however, this does raise serious questions about whether investors know what they are getting into with the rush to invest in crypto.”

AltX is an alternative investment platform for sophisticated investors. It focuses on generating stable returns through secured first mortgages with bricks and mortar as the security.

“There is a whole universe of alternative investments out there, many enabled by new technology and platforms like ours. But the fundamentals of investing haven’t changed.”

“Understand your goals and time horizon, and do the due diligence on risk and return.”

Are you investing or gambling?

Cryptocurrencies may seem to play a growing role in an investment portfolio.

But it is very difficult to ‘pick’ a solid bet. And while Bitcoin has been referred to as a safe haven asset, potentially a replacement for gold as a hedge against political or economic uncertainty, its performance is not as predictable as traditional safe-haven assets.

A JP Morgan Asset Management analysis found the current generation of cryptocurrencies, including Bitcoin, are unlikely to ever be used widely as a traditional payment replacement.

As a store of value or a medium of exchange, they are just too volatile and don’t correlate to traditional market movements. Suggestions of regulation, along with China’s crackdown on Bitcoin mining saw alot of billions wiped from the crypto market in November.

As ethical investments are a priority for 40% of Australia’s professionally managed capital, the environmental, social and governance (ESG) risks of crypto cannot be ignored.

Bitcoin’s annual energy consumption is nearly equal to Sweden’s, due to the significant computing power required to mine the digital currency.

The nature of encryption of digital currencies makes them difficult to trace and ideal for tax evasion or payments in the underground economy. But cryptocurrencies are liquid and the rise of retail trading platforms makes it easier to get in and out of holdings.

“The rise of online trading apps legitimises inherently speculative investments like crypto, and unwary retail investors are being convinced by their social media feeds,” says Raphaely.

If history repeats itself, it’s possibly only a matter of time before the bubble bursts.

Do you want greater certainty of returns?

With housing affordability at an all-time low in Australia, it’s not surprising millennials make up a significant proportion of investors who view crypto assets as an alternative to buying property. Or at the very least, a way to super-charge their home deposit.

“It’s hard to diversify property investments when a single asset has a high entry cost.”

“There are other ways to benefit from Australia’s property boom, by being the bank lending to property investors and developers, through direct deals or private debt funds.”

AltX products are designed to generate returns of around 4%-8% on first mortgage-backed property investments over a fixed period, typically six to twenty four months.

For some investors who are seeking for consistent returns on investments in a low interest economy, this aspect makes it a stable alternative to traditional fixed income.

“Investors like knowing that their investment is backed by a tangible property asset they can see and know where it is, how it’s valued, and rank in priority in an event of default.”

AltX possesses a ten year track record of zero capital losses and this amazing phenomenon facilitates giving its investors confidence in preserving their capital.

“If you asked most investors to summarise their investment aims, it would probably come down to two goals: a steady and reliable rate of return, with low risk to their principal.”

Private real estate debt sits in this more conservative end of the alternative spectrum and cryptocurrencies are arguably sitting at the other extreme of the spectrum.

And before leaping into the next big thing in crypto, investors would do well to consider what they’re really trying to achieve – and who’s actually behind the deal.

There is a universal truth of investing, If it looks too good to be true, it probably is.

AltX is a market-leading alternative investment platform.

Founded in 2012 in Sydney, AltX provides bespoke access to alternative income-generating products which have traditionally been inaccessible to individual investors.

AltX has funded $2bn of transactions since inception with zero loss of investor capital.