You've probably heard stories about people getting rich from their crypto investments.
Maybe you've read about someone who bought Bitcoin (BTC) in the very early days and sold it at a huge profit. Or maybe you have a friend who bought the right altcoin before it gained 1,000% in value almost overnight. While some of these stories are true, they are also few and far between.
Crypto is a very risky investment, and for as many who have struck it rich investing in crypto, there have been even more who have lost money.
So, let's unpack whether crypto is still a good investment in 2024.
This is not an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade or use any services.
What kind of investment is crypto?
Only 2 countries on Earth – El Salvador and the Central African Republic – consider Bitcoin (BTC) legal tender. And in no region of the world is any crypto asset other than BTC classified as legal tender.
Regulatory agencies in different countries and jurisdictions also categorise crypto assets differently.
For example, some regulatory agencies classify Bitcoin (BTC) as a commodity and most other crypto assets as securities. In some countries, crypto is considered property, while in others, it's classified more like stocks.
Regulatory uncertainty around the asset class is just one of the factors that make it a high-risk area to invest in.
Do Australians think cryptocurrency is a good investment?
We have some data from surveys over the past few years that show people's attitudes towards cryptocurrency investments.
Just 16% of Australians think cryptocurrency is a good investment as of February 2023.
Aussies were most positive about cryptocurrency as an investment in January 2022, when 27% said they thought it was a good time to buy some.
In September 2022 and in February 2023 people were the least bullish on buying cryptocurrency with just 16% of Aussies saying it was a good time to buy.
In December 2021, 20% of women and 29% of men said it was a good time to buy cryptocurrency compared to 16% of women in February 2023 and 15% of men.
Typically men have been more likely to be pro-cryptocurrency than women.
Gen Z has been the most bullish on cryptocurrency as an investment. At one stage nearly half (47%) of Aussies in this age group said it was a good time to invest in cryptocurrency compared to 27% in February 2023.
On the other end of the spectrum baby boomers have been the least positive, with just 1% of Aussies in this demographic saying it was a good time to buy cryptocurrency in late 2022. This compares to 3% who said the same in February 2023.
Some who invest in crypto first do so because they hear – falsely – that it's a way to get rich quickly. Others have a more ideological approach and believe in the idea of a decentralised global currency that isn't issued by the state. The following are some other reasons you might consider investing in crypto:
Gaining exposure to a burgeoning asset class. It's unclear just how much or in what ways cryptocurrency networks will disrupt our current financial and monetary systems. But as new use cases for crypto assets and networks begin to emerge, it's easy to imagine that this asset class is still young and may provide significant returns in years to come.
Portfolio diversification. If you have a fairly high-risk tolerance and would like to have some exposure to assets that have historically increased – and dropped – in value very quickly, then allocating a small percentage of your portfolio to crypto might seem appealing.
Inflation hedge. An asset like BTC can be viewed as an inflation hedge depending on how long you hold the asset. For example, in February 2019, Bitcoin (BTC) was trading at a peak of about US$4,183 and in February 2023, it was trading at a peak of about US$25,000. However, BTC was trading at just over US$69,000 in November 2021 and dropped in price considerably in the subsequent year. Historically speaking, though, almost anyone who has held BTC for more than 4 years has found BTC to be a profitable investment and a hedge against inflation.
Volatility. Some investors and traders welcome volatility. Assets like BTC and ETH have increased in value exponentially over the course of just a few months. If you are skilled at taking profits – or selling when asset prices increase quickly – when your investment increases in value in a short period of time, then you may want some exposure to BTC and ETH.
Crypto vs stocks
A stock represents fractional ownership of a company. When a company does well, the price of the company's stock tends to rise.
A cryptocurrency is a payment unit on a blockchain network. The more users a network has, the more that network's cryptocurrency tends to increase in value.
Importantly, the stock market is regulated, while the crypto market is still largely unregulated. As a result, traditional stock prices tend to be more stable than the notoriously volatile crypto market.
Finder survey: How risky do Australians think cryptocurrency investments are?
Response
5
50.35%
4
25.17%
3
19.52%
2
2.58%
1
2.38%
Source: Finder survey by Pure Profile of 1009 Australians, December 2023
Do you get a return if you invest in crypto?
Before we begin, it's important to note that past performance is no guarantee of future performance.
Historically, if you've bought and held an asset like Bitcoin (BTC) for 4 years or longer, you've likely made a profit on your investment.
The same is generally true for investing in the SPDR S&P 500 ETF Trust (SPY) – a stock market index that tracks the stock performance of the 500 largest companies that have stocks listed on exchanges in the United States.
If we measure the price of Bitcoin (BTC) against that of the SPDR S&P 500 ETF Trust (SPY) from their peak prices during the month of February 2019 to their peak prices in February 2023, BTC far outperformed the SPY.
In February 2019, BTC's price hit a peak of about US$4,183, while the price of the SPY hit a peak of about US$281.
In February 2023, BTC's price hit a peak of about US$25,000, while the price of the SPY hit a peak of about US$415.
The return on a BTC investment in that 4-year time frame was approximately 598%, while the return on the SPY investment was about 148%.
Very few cryptocurrencies have performed the way BTC has on a longer time horizon. Over 3,000 crypto projects have failed and been deactivated.
The prices of very few crypto assets other than BTC and ETH have remained in a broader uptrend for longer than 5 years.
And even within the broader uptrend the prices of these assets experienced, the prices of these assets have also sunk considerably during certain 1- to 2-year periods.
Investing in crypto over the long term
When investing in crypto, it's important to zoom out and look at long-term trends in the prices of digital assets.
This isn't to say that you can't make a decent profit trading crypto on a short-term basis. It's just that you have to very proactively manage your investment if you plan to day trade or swing trade.
If you'd like to be a little more hands-off with your crypto investment, then you might consider allocating a small amount of your portfolio to blue chip crypto assets like Bitcoin (BTC) and Ethereum (ETH) and holding these assets for at least a few years.
As mentioned in the previous section, investors who have bought and held BTC – or ETH – for more than 4 years have generally made a profit on their investment.
Just over 4 years ago, in February 2019, BTC was trading at a peak of about US$4,183, while in February 2023, it traded at a peak of just above US$25,000. Its price was up almost 600% after the crypto market spent a year in a downtrend in 2022.
The price of ETH experienced a similar trend. In February 2019, ETH traded at a peak of US$165, while in February 2023, its price touched approximately US$1,740. The price of ETH was up over 1,930% – again after the crypto market spent a year in a downtrend in 2022.
Crypto investment and adoption trends
Crypto assets benefit from network effects. The term 'network effects' refers to the idea that the more people join and use a network, the more valuable that network becomes.
So, as more and more people buy BTC and ETH and use the Bitcoin and Ethereum networks, the more value these assets tend to accrue.
With global ownership of crypto assets growing at a steady rate, the prices of certain crypto assets will likely continue to rise in tandem.
Please keep in mind, though, that there is no guarantee that networks like Bitcoin and Ethereum will continue to grow – and especially not at the rate at which they've grown in the past.
Why Australians don't own cryptocurrency
The top reason more Australians don't own any cryptocurrency is because they don't have any spare money to invest (22%).
1 in 5 (20%) Aussies said they don't know how to buy cryptocurrency and 9% said they don't even know what cryptocurrency is.
18% said they thought cryptocurrency is a scam and 16% said it's just too volatile.
Is it safe to invest in crypto?
Governments, regulators and financial advisers have all warned investors of the dangers of investing in crypto assets.
So, before investing a large amount of money into crypto assets, it's important to consider the following risks:
Volatility. Even more established crypto assets still experience massive bouts of volatility. For example, BTC's price dropped 77% – from about US$69,000 to US$15,500 – from November 2021 to November 2022 before it bounced back to US$25,000 by February 2023. Before investing in crypto, it's important to understand your risk tolerance, because when the price of BTC is dropping like a stone from the price at which you purchased it, the feeling can be quite unsettling.
Scams.Crypto scams are common and come in many forms. From phishing scams to fraudulent initial coin offerings (ICOs) to rug pulls, the crypto space is rife with malicious actors and schemes. To help offset your exposure to fraudulent activity in the crypto space, it's important to only use trusted crypto exchanges and wallets.
Hacks. In crypto, everything from centralised crypto exchanges to DeFi protocols are subject to hacks. In 2022 alone, US$3.8 billion was stolen in crypto hacks, which occurred primarily in the DeFi space with issues involving smart contracts.
Regulatory uncertainty. Most governments are still in the process of developing a regulatory framework for cryptocurrencies, so it's difficult to fully gauge the risks of holding and transacting with certain crypto assets. For example, some regulators are calling for a major crypto asset like ETH to be classified as a security. If this were to happen, you might not be able to buy or sell said asset on your preferred crypto exchange, and this could drastically affect the price of the asset.
Custodial mishaps. Managing your crypto in a non-custodial wallet can be challenging, and unless you've practised using a crypto wallet and feel confident in doing so, you could very easily send your crypto to an incorrect wallet address by mistake, losing it forever in the process.
6% of Australians said they completely exited the cryptocurrency market as a result of the FTX collapse and related events.
An additional 6% said they still own cryptocurrency but decided to stop trading while 4% said they'd already exited the market before the collapse.
8% of respondents said they will continue to own and trade crypto despite the FTX contagion.
How to decide whether you should invest in crypto
The choice to invest in crypto is a very personal one, especially since licensed advisers for this asset class do not yet exist. Before making your first crypto purchase, you might want to ask yourself the following questions:
What is your risk tolerance? If you plan to invest in crypto, you must be emotionally ready to weather 75–99% swings in asset prices. While the price of blue chip cryptos such as BTC and ETH tend to go up in the long run, their price experiences drastic volatility in the short term. And that volatility is even more pronounced for altcoins with smaller market capitalisations.
How much money might you be willing to lose? Since investing in crypto is a highly speculative endeavour, you have to be prepared to potentially lose a large percentage of your investment. It's important to consider how much you might lose as much as how much you might gain when deciding what amount of your cash to invest in crypto.
Are you investing for the short or long term? Consider what your investment time horizon looks like. Do you plan to day trade your crypto investment or hold it for years through drastic price increases and decreases?
Do you know how to safely self-custody your digital assets? If you plan to buy and hold your crypto for a prolonged period of time, knowing how to self-custody your assets is important. Learning how to use a non-custodial wallet is a vital step in maintaining true ownership of your assets.
Crypto investment platforms in Australia
1 - 5 of 27
Alternative investments
If the risk associated with investing in crypto assets is too much for you, then you might consider investing in or trading traditional assets instead.
Technology stocks. While technology stocks aren't quite as volatile as crypto, they are still riskier assets that tend to perform well in bull markets.
Blockchain stocks. Certain companies like Square (SQ), Coinbase (COIN) or NVIDIA (NVDA) create products that support the crypto industry. Like technology stocks, blockchain stocks are volatile, but not as volatile as crypto assets.
Forex. Forex trading – or trading different government-issued currencies against one another – may be appealing to crypto investors who are accustomed to trading one cryptocurrency against another.
Gold ETFs. Some consider Bitcoin (BTC) "Gold 2.0" – despite the fact that BTC trades more like a technology stock than gold. If you are looking for exposure to the original gold, you could buy shares of a gold ETF like the SPDR Gold Trust (GLD) or the iShares Gold Trust (IAU).
Bottom line
Investing in crypto is a very risky endeavour.
If you are new to crypto investing, it's important to consider the many risks associated with investing in the asset class and to not invest more than you would be comfortable losing.
And if you do decide to invest in crypto, be sure to thoroughly research top digital assets before making any purchases.
While this is ultimately a personal decision, it's difficult to ignore the fact that sentiment around the crypto space is low right now. To some, these lower crypto prices signify a buying opportunity, while to others, they're a grim sign for the likelihood of market recovery. Weigh up the risks against your budget and financial goals when deciding whether you should invest.
It's a mistake to think of crypto as a "get rich quick" scheme. Whether or not you will make a profit has a lot to do with how much you invest, which digital assets you invest in, what your time horizon looks like and whether or not the crypto market enters the type of bull run it's experienced in the past again.
The longer crypto exists, the more it's likely to continue to exist. Most governments around the world have accepted that crypto doesn't seem to be going away – and some have even made BTC legal tender. That being said, crypto's future isn't a given. Evaluate the potential impact of global adoption rates and regulatory uncertainty to help you decide.
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.
Frank Corva is the senior analyst for digital assets at Finder. Frank has turned his hobby of studying and writing about crypto into a career with a mission of educating the world about this burgeoning sector of finance. He worked in Ghana and Venezuela before earning a degree in applied linguistics at Teachers College, Columbia University. He taught writing and entertainment business courses in Japan and worked with UNICEF in Namibia before returning to the States to teach at universities in New York City. He spent years as a publicist and graphic designer in the music industry, working for record labels like Warner Music Group and Triple Crown Records, and he's also a former music journalist whose writing and photography has been in published in Alternative Press, Spin and other outlets.
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