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Following a tumultuous few years in the cryptocurrency space, including a boom and bust cycle that made the dotcom era look like a minor tick upwards on the charts, cryptocurrencies are still seen as complicated and more than a little murky.

One thing is clear though, the market does not yet know how to value this new technology and so we may continue to see similar volatility for some time to come.

Is it possible to diversify into cryptocurrencies?

With the price of Bitcoin having recovered back towards $5,000 and lifting other cryptocurrencies with it, the sector could be piquing the interest of any investors looking to diversify into this emerging and evolving world of digital assets. There are ways to gain exposure to the digital asset class other than just buying Bitcoin directly.

Technology adoption comes in waves. If the four year cycle ‘chartists’ are correct (a cycle being a year of gains followed by two years of declining prices, forgetting the past in order to jump once again into the fervour for the final year) we could be closing in on the bottom stages of the ‘bust’ part of the cycle.

Everyone is hunting down signs of a positive change in sentiment and there’s money sitting on the side lines waiting for the starting gun,” says George McDonaugh, CEO of publicly listed cryptocurrency firm KR1. “For those that plan on getting stuck in, having exposure to the sector via a publicly listed share that specialises in blockchain and / or crypto assets allows the ‘toe dipper’ to park the investment in their stocks and shares ISA.”

He says that should any move higher in the cycle emerge again, then the investor that did dip their toe in could potentially either sit on a decent nest egg or be “riding a perfect barrel all the way to the end.”

Not all blockchain shares are equal

Alas not all shares are alike, especially in the small clique of publicly listed blockchain focused companies. To catch any possible rise you’ll need to find shares in a company that has got its claws so deep into the tech, it can hold on for the duration of the cycle in an attempt to truly capture the value.

Currently the general direction of travel of all crypto assets is to follow the price of Bitcoin, but while the trend may be the same, the price movements of different assets can differ wildly. If Bitcoin doubled in price, there are some assets that may multiply by fifty times. It’s a mixture of where the project is in its life cycle, its success so far and how popular it is within the ecosystem.

Companies building blockchain solutions for enterprise, or those building stand alone tech for consumer adoption will certainly gain from a positive change of heart from the wider investor market, but their business offering is a few steps removed from the assets themselves and often there is no connection at all. It’s therefore essential to find a company with a portfolio of not only the ‘base’ assets like Bitcoin and Ethereum but a number of bleeding edge ‘next generation’ assets that a surge in the tide will drive higher than anything else.

“Projects like these often start behind closed doors with invited investors only,” explains McDonaugh. “The kernel of the project is put together, the team, roadmap and funding plans all put in place. Often by the time the super early adopters (if you’re not plugged into ‘crypto twitter’ hunting down grapevine rumours of project launches hot off the press then you’re not quite in this group) have heard of it, the pre-seed round is long since over and most likely so is the seed/private round. One way to get in at the earliest stage is to invest in a company that does this.

So this ISA season it may be worth considering diversification into this alternative asset class via a publicly listed business that specialises in crypto, token and blockchain investments.

These are not easy to find, but often they are closer and more accessible than you think. As with any investment though it is important to do your own research, don’t put all your eggs in one basket and seek independent advice where necessary. Such investments are not suitable for everyone.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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