If Bitcoin’s good enough for AMP then should you get into it?

Bitcoin is now being held by financial services companies such as AMP. Picture: AFP

The decision by none other than AMP to invest $27m into Bitcoin may well be a game changer.

If a big fund manager like AMP has dipped its toe in the water, what should you do in your own portfolio?

Bitcoin, the biggest individual cryptocurrency coin with a $2.7 trillion market cap, has experienced several boom-and-bust cycles during its relatively short history.

From 2020 to 2022, the price of Bitcoin rose by 650 per cent and then fell by 75 per cent. The current cycle, which started early 2023, has seen the price of Bitcoin rise by more than 500 per cent. If this cycle follows the last, indications are that the price of Bitcoin may have further to rise yet, but the peak is on the horizon. Invariably, early investors who bought in at lower prices start to take their profit and sell, which puts pressure on the ability for prices to keep rising.

As cryptocurrency gains more investor acceptance from both large financial institutions and government, Justin Arzadon, head of digital assets from Betashares, which runs the $200m Crypto Innovators ETF (ASX: CRYP) thinks the sector may continue to enjoy strong tailwinds.

“Looking ahead to 2025, there is a lot to be positive about when it comes to Bitcoin and digital assets more broadly,” Arzadon said.

“The incoming Trump administration has made some supportive statements in terms of a more permissive regulatory approach to the asset class, while the US Federal Reserve will potentially continue to cut policy rates. These two factors will be supportive of the prices of Bitcoin but also the broader range of listed companies that service the digital assets ecosystem. Moreover, as maturity continues to improve, the bad old days of crypto being like the wild west are increasingly behind us as traditional finance and regulators clean up the space.”

Skeptics say cryptocurrency has no intrinsic value and is only worth what someone is prepared to pay, while fans say it will replace traditional banking systems and become deeply embedded in all aspects of our lives in the future.

In terms of how to think about cryptocurrency as part of a diversified portfolio, Arzadon said “it’s very important that investors do not look at this asset class as a get-rich-quick scheme”.

“Many investors with a trading mindset towards the asset class have had their hands burned by attempts to time the market,” he said. “Digital asset exposures are more suited as a small allocation within the alternatives bucket of the portfolio. Many sophisticated high-net-worth and institutional investors, like AMP, are also increasingly looking at the asset class in this way which will no doubt promote further adoption of crypto and related exposures.”

How to get started

If you believe 2025 is the time to take the plunge into crypto, there are several ways to get started.

Similar to how ASX shares are purchased via a stockbroker, cryptocurrency coins and tokens are purchased using a crypto exchange. Given the emerging nature of regulations in this sector, care needs to be taken when deciding on a crypto exchange so you do not end up with a provider that’s here one-moment, gone the next.

After the initial purchase, many seasoned crypto investors take their assets offline and hold them in what is known as a “cold storage wallet”, which is essentially a password-protected USB stick. Taking crypto assets offline helps reduce the risk of a digital asset thief raiding your cryptocurrency account.

If you want to buy cryptocurrency other than Bitcoin but are not sure what to buy, one method is known as the equal weight strategy. This is where you buy each of the top 20 or 30 crypto coins and invest an equal amount in each. For instance, If you had $10,000 to invest, you might invest $500 in each of the top 20 coins. If you follow this approach, avoid investing in stable coins such as Tether which are anchored to the US dollar and will not produce crypto-like returns, rather they follow movements in the dollar.

If this all sounds too complex, a simpler approach is to purchase one of the several Bitcoin ETFs that trade on the ASX from companies such as DigitalX (ASX: BTXX) and VanEck (ASX: VBTC). These ETFs replicate the price of Bitcoin by holding Bitcoin in their portfolios and charge a 0.49 per cent annual management fee.

Another option is to invest in companies fundamental to the crypto sector, like Nasdaq-listed Microstrategy, that holds massive amounts of Bitcoin, or Riot Platforms – which runs one of the largest crypto mining companies. There are several ETFs that provide a spread of companies and sectors in cryptocurrency to invest in. A popular local choice has been the Betashares Crypto Innovators ETF which returned more than 140 per cent over the last 12 months, but there are alternatives, like Global X Fintech and Blockchain ETF (ASX: FTEC) which rose 35 per cent in 2024.

Cryptocurrency continues to be one of the most polarising investments. While only time will tell whether the early 21st century was the beginning of a digital crypto revolution or just another variation of the 17th century Dutch tulip mania, investors should not stick their heads in the sand.

Research cryptocurrency like you would with any other investment class and then make an informed decision as to whether it is appropriate for your portfolio, given its high-risk nature and large potential spectrum of returns.

James Gerrard is principal and director of planning firm financial advisor.com.au