With Bitcoin crossing the not too insignificant $10,000 milestone this week, just days after it crashed through the $9,000 mark, cryptocurrencies continue to be a source of division amongst investors.
Some investors see cryptocurrency as the future. A currency that has no international boundaries and no Central Bank or Government interference. A perfect currency for a technological age.
Others see Bitcoin, Ethereum et al as a bubble that is waiting to burst. With nothing supporting them and no external pricing factors other than demand, of course, surely a mass sell-off would see cryptocurrencies crumble completely, rendering them completely worthless?
The thing is, whether you are pro cryptocurrencies, or against them, there is no disguising the fact that investors are currently making a lot of money as prices continue to soar.
So, perhaps the more important question at this stage should be “how do investors get exposure to a burgeoning market, without the risk of losing their money should the worst happen?”
Cryptocurrencies and Contracts for Difference
The team here at The Armchair Trader have discussed at length the relative merits of Contracts for Difference in such circumstances.
Holding a physical asset for many investors is important. There is recourse should there be problems with a broker and for dividend paying assets, there is the additional benefit of compounding.
However, for cryptocurrencies, where you’ll hear a loud chorus of professionals warning of the dangers, a Contract for Difference can help to mitigate some of those risks – providing, of course, the necessary precautions are taken.
The eToro CryptoFund
Back in February, we introduced you to the concept of Copyfunds from social trading broker, eToro. We were pretty impressed with the simplicity of their product and the ease with which investors were able to gain exposure to their chosen markets.
The Cryptocurrency CopyFund was launched in June and originally provided exposure to the two biggest digital currencies, Bitcoin and Ethereum. The CopyFund has since added Litecoin, Ethereum Classic, Dash and Ripple to it’s portfolio.
eToro’s Investment Committee are tasked with overseeing the CopyFund with the weighting of each of the crypto assets determined by their market cap, with the portfolio rebalanced at the start of each month.
There are no ongoing fees or management charges associated with the CryptoFund. However, the underlying transactions will incur fees through eToro’s spreads – their commission for opening and closing positions for each component stock.
Performance has been stellar over the last 12 months (based on backtested results) as you would expect, with growth of more than 1050% over the period. Take a look at the chart below.
Commenting on the Cryptocurrency CopyFund, Yoni Assia, co-founder and CEO of eToro, said: “We have seen an increasing number of our clients looking for a simpler way to access investments in cryptocurrencies – with a view to building a portfolio in the future. They were asking how to allocate their investments between the two largest cryptocurrencies that are traded on eToro, so we have launched an automatically rebalanced investment strategy to simplify their investments into this new exciting asset class.”
The Armchair Trader says: Bear in mind, you’ll need a minimum of $5000 to invest in the fund. However, eToro provide access to a range of individual cryptocurrencies which require just a $200 deposit. Either way, The Armchair Trader would urge you to ensure that you set your stop losses appropriately. That way, should the worst case scenario occur and prices crash through the floor, you’ll stand to lose no more than the level you have set.