• Sat. May 21st, 2022

Midlands accountants discuss the brutal truth about cryptocurrencies

ByHazel R. Lang

Apr 18, 2022

By Glen Callow, managing director of Prime Wealth – the financial planning arm of Prime Accountants Group

Accountants at a leading firm in the Midlands have urged caution about the volatile nature and unpredictability of the growing phenomenon of cryptocurrencies and non-fungible tokens (NFTs).

While digital tokens, cryptocurrencies and blockchain-based business models are here to stay, Glen Callow, managing director of Prime Wealth – the financial planning arm of Prime Accountants Group – said it was essential to consider the risks surrounding this emerging market before investing.

Bitcoin, the original cryptocurrency, has seen both astronomical growth over the past decade and massive sell-offs at various points in between. The value of other cryptocurrencies such as Dogecoin has also risen and fallen even more sharply, often solely based on Elon Musk’s tweets.

Similarly, NFTs are assets in the digital world that can be bought and sold, but do not have a tangible form of their own.

These digital tokens, which appeared in 2014, can be seen as certificates of ownership of virtual or physical assets. They have a unique digital signature, which means they cannot be copied or reproduced.

Glen said this volatility, coupled with the lack of intervention from a trusted third party like a central bank or financial institution, means Prime cannot currently recommend them as a viable investment in good conscience.

He said the unpredictability of these markets indicates why curious investors should pause before investing.

“Financial planners in the UK tend to avoid these assets due to the fact that they are highly speculative in nature with no protection for investors. The Financial Conduct Authority (FCA) itself has stated that those who invest in cryptocurrency should be prepared to lose all their money,” Glen said.

“In fact, the recent craze around NFTs has created potential asset bubbles that have yet to prove whether they have intrinsic value. maybe the market is getting a little frothy!”

Glen said Prime Wealth has clients who have invested in cryptocurrencies, some of whom have been successful. However, he would still strongly advise that if people wish to participate in this market, they should only do so with money they can afford to lose.

“Over the past few months, crypto assets have become highly correlated to the broader market selloff and don’t even offer diversification characteristics,” he added.

“The appeal to the younger generation of crypto investors is the ability to make money fast and see their investments grow quickly. However, they should understand that the opposite may also be true and they may lose some or all of their investment.

“What may be a wiser investment is the more traditional approach, where you invest regularly and for the long term either by choosing a diverse range of companies, sectors and geographies – or even better, by working with a financial advisor who understands your needs and goals and can develop a plan to help you achieve them.

“Right now, investing in digital assets is more like gambling or speculation than investing. Often the only thing investors really understand about their cryptoassets is that they have gone up or down in value. It’s just a matter of hoping that there will be someone who will eventually buy the asset from you for more than you paid.

“Investing in a business is very different as it will often have its own product, brand, workforce, assets, revenue, profit and perhaps growth prospects. All of this is tangible , making it a safer investment.

Glen said regulators were rushing to craft rules to manage cryptocurrencies, fearing their growing popularity could threaten established financial systems.

Meanwhile, the United States is set to develop regulations amid growing fears that the cryptocurrency industry is a haven for criminals.

Glen added: “In addition to the high investment risks, the process of generating digital coins through banks of powerful computers, called mining, is also very energy-intensive. Recent research suggests that Bitcoin now generates comparable carbon emissions to those of the Greek country!

“It is for these reasons that we always recommend that our clients invest using a regulated financial advisor who can help them navigate precarious and often risky investment areas.”

For more information about Prime Accountants Group, visit www.primeaccountants.co.uk or search for Prime Accountants Group on LinkedIn.

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