What makes cryptocurrency investors tick?

BTC Markets, a digital asset exchange with over 325,000 Australian clients who have traded over AU$17.1 billion in digital assets since its launch in 2013, has released its first-ever Investor Study Report that contains interesting insights into the behaviour of Australian cryptocurrency investors.

BTC conducted a comprehensive analysis of the meta data on its platform for the financial year FY20-21 and compared this data to the previous financial year. Additionally, it conducted an online survey in June 2021 with over 1,800 users on its platform across different demographic segments asking questions about issues such as motivations for investing in cryptocurrency, investment strategies and the challenges of investing in crypto.

While the motivations for investing in cryptocurrency were found to be many and varied, a majority of survey respondents (70 per cent) said they were looking to build wealth and a significant percentage (34 per cent) said that one of their goals for investing in cryptocurrency was to retire early.

The report considered that this result indicated a longer-term investment timeline than the stereotypes would have us believe. Instead of a meme-driven frenzy, Australians are looking to cryptocurrency to build and provide for their future. Also noteworthy are the 28 per cent who use cryptocurrency investments for overall portfolio diversification. This is a role traditionally held by alternative assets such as REITs, hedge funds, art, precious metals such as gold, and other collectibles. The report concluded that this indicates that cryptocurrencies play an increasingly important role as an alternative asset in the portfolio construction process.

A surprising trend highlighted in the report was the rise in the number of SMSFs using BTC’s platform. The number of SMSF’s rose by 95 per cent in the 2020-2021 financial year and the average portfolio size increased by 145 percent.

In terms of future investment strategy, a substantial percentage of the survey respondents (43 per cent) said they plan to buy and hold their crypto investments. A small but meaningful percentage (10 per cent) reported they will maintain a one to five per cent allocation in their overall investment portfolio, consistent with the well-established core-satellite investing approach. Only one per cent of the survey respondents said they want to exit crypto for good, demonstrating the stickiness of cryptocurrency investors. The report argued that the commitment showed by cryptocurrency investors reinforces the need for adequate regulatory protections in Australia.

The survey participants recognised the challenges posed by a lack of regulation when investing in cryptocurrencies. More than a quarter of respondents (28 per cent) said that a lack of regulation in the industry was a challenge when investing while another 10 per cent said a lack of more accessible products, such as exchange-traded funds and listed investment companies was a challenge.

ASIC recently consulted on how exchange traded products (ETPs) that invest in, or provide exposure to, crypto-assets can meet existing regulatory expectations. SAFAA provided feedback to the consultation and argued that if crypto-asset ETPs are to be regulated as a financial product they must meet strict guidelines to ensure consumers are protected. SAFAA considers that crypto-asset ETPs should only be available to retail investors through licensed Australian markets if there are clear parameters and appropriate guardrails that provide for robust liquidity, transparency and price discovery.

The Senate Select Committee on Australia as a Technology and Financial Centre released its report with recommendations for a regulatory framework for crypto-assets. The recommendations include providing Treasury with the power to control cryptocurrency exchanges under a new category of financial markets licence, creating protections for bitcoin investors and developing a governance model that would allow companies to be run by an internet community rather than executives and directors. Investor protections include local custody rules which would see digital assets held by professional custodians.

Senator Andrew Bragg, who chairs the Committee, would like the recommendations enacted as legislation in 2022. He says Australia should strive to become a cryptocurrency hub, utilising renewable energy in an emissions-friendly fashion, so that Australia captures the potential of the sector.

Investors and their advisers who are interested in investing in and advising on crypto-assets are encouraged to watch this space.

This article is general information only.