Cryptocurrencies, watch out for your investments: 3 risk factors (and 5 tips)

The pendulum on cryptocurrencies continues to oscillate between the new frontier of financial investment and the terra incognita full of risks rather than opportunities. In recent days, a signal of attention has come from the Hong Kong Stock Exchange – therefore the largest in the international finance market – which follows by a few weeks the one launched by the SEC, the US federal body responsible for the supervision of stock exchanges. In both cases the green light was given to spot ETFs on Bitcoin and Ethereum, two of the main cryptocurrencies in circulation.

Bitcoin spot ETFs force the funds authorized to issue them to hold the actual cryptocurrency and allow investors to buy shares that represent a portion of the amount of Bitcoin held by the fund. In short, a landing in the reality of a currency that remains “ethereal” by definition. A further step towards convergence between finance traditional and digital.

15 years have passed since the launch of Bitcoin (the first cryptocurrency generated) in 2009 and its value compared to the dollar has exceeded all expectations, reaching 69 thousand dollars in value for a single Bitcoin in 2021. Dramatic swings in price and value have left Bitcoin and its brothers (and sisters) still an uncertain world. But the signals from Hong Kong and New York bring investment hypotheses closer even for the most cautious subjects (but some risk is inevitable).

In Italy (and throughout Europe) it is still not possible to buy Bitcoin spot ETFs. This is because, according to European Union regulations, a Ucits compliant ETF centered on Bitcoin does not meet the key Ucits requirements, the quality guarantee mark of theEuropean Union.

This does not mean that there are no tools to partially expose yourself to the trends of the Bitcoin market. The investors Italians and Europeans have already had the opportunity to expose themselves to Bitcoin and other cryptocurrencies for some time thanks to Exchange Traded Products (ETPs), products that faithfully replicate the performance of the underlying. The investor, unlike what happens with ETFs, does not indirectly own a share of the fund’s assets, but owns a debt security and not as an equity security.

In Europe there are currently around 130 cryptocurrency ETPs, starting with Bitcoin and Ethereum, listed on various European stock exchanges such as Euronext Amsterdam or Euronext Paris. The Italian Stock Exchange is missing, but from 2019 Italian investors can do so trading on these cryptocurrency ETPs only if the broker or trading platform you rely on offers the possibility to do so.

Where to buy cryptocurrencies?

But the world of cryptocurrencies requires caution and attention. First of all, where to buy them?

• There are exchange (like Binance)
• hey cryptocurrency broker (e.g. eToro)

Exchanges were created specifically to hold and trade cryptocurrencies, with all the services offered revolving entirely around them. Here very often you have the possibility to make them an income by receiving decent percentages of annual interest, participate in the launch of new cryptocurrencies and many other things that depend on the platform in question. Brokers, on the other hand, usually allow the purchase of CFDs (contracts for difference) but not of the cryptocurrency itself (with the exception of platforms such as eToro where the cryptocurrencies are real). This means that, by buying a bitcoin CFD, you will have a security that will allow you to replicate gains or losses of the underlying asset, but nothing more.

At this point to buy cryptocurrencies in Italy it is necessary to follow these steps:

1. Choose a cryptocurrency broker or exchange.
2. Create and verify your account.
3. Deposit funds to invest.
4. Place your cryptocurrency order.
5. Choose where to store your cryptocurrencies.

Risk factors

First of all, it is worth underlining that every investment, of any nature, brings with it a series of risks that the investor should take into account. Regarding cryptocurrencies there are specific risk factors:

• a first risk factor is to be associated with their volatility. In fact, cryptocurrencies are subject to strong fluctuations of prices and may represent a speculative bubble, with the possibility of significant losses;
• there lack of adequate regulations exposes investors to risks related to fraud
• their technological nature exposes them to the risk of hacker attacks

Despite the associated risks, the cryptocurrency market also offers a number of great opportunities that are difficult to replicate across other asset categories.

Extreme volatility is a risk, but for many traders it has become an opportunity to multiply the value of the investment in a short time.