Crypto can be a hedge against rising rates and inflation

Evidence suggests many Australians are purchasing crypto assets to include in an investment portfolio – at least 800,000, to be precise, according to the latest data from Treasury.

For Australian investors, regulations governing cryptocurrency exchanges and their use could be forthcoming if the next government implements the recommendation of last year’s Bragg report into cryptocurrency policy.

But as it stands, the main way retail investors (that is, those with less than $2.5 million in net assets or earning less than $250,000 a year) can invest in crypto assets is by directly buying units via an unregulated cryptocurrency trading platform or exchange. They can do this in just minutes, after just providing some basic identification. Most exchanges provide access not just to large-cap tokens such as bitcoin and ether but hundreds of “alt-coins”.

A growing number of increasingly sophisticated investors are piling into this nascent asset class. Naturally, that does not mean you should too.

Given the obvious risk attached, for some investors, (especially those in or approaching retirement) any exposure to crypto markets may be a step too far. That is a justified assessment for an investor to make.

For BTC Markets chief executive Caroline Bowler, the demand for crypto assets goes deeper than spot rice speculation to the emerging utility and underlying use cases of the associated technologies.

“As interest rates look set to rise, crypto’s use as a store of value is being demonstrated by the stabilization of its price,” Bowler says. “As an increasingly mainstream asset, crypto can also be a hedge against rising rates and inflation.”

Although crypto enthusiasts are keen to stress the market will calm as it matures, Grant Wilson, a former hedge fund manager and now head of Asia-Pacific at investment consultancy Exante Data, says volatility will probably be persistent.

The inability to be certain about that is one of many known unknowns that make valuing crypto assets, and therefore investing in them, fraught with difficulty.

Another uncertainty, Wilson says, is the extent to which crypto assets are correlated with other asset classes or behave differently, giving a portfolio clear diversification benefits. This is one of the central arguments made by those who position crypto as an effective foil against inflation.

Alex Vynokur, chief executive of exchange-traded fund manager BetaShares agrees that the early stage nature of crypto assets makes them difficult to assess. “Over the past six months, the performance of bitcoin and ether have been within about 0.5 per cent of major global share market indices,” he said. “That is significantly higher than over the last 10 years.”


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