The New Era of Crypto Assets

Explore crypto assets, exchange-traded products and their potential role in a diversified portfolio.

Overview

Crypto assets are digital tokens recorded on distributed networks. Their prices can be highly volatile and depend on adoption, market sentiment and regulatory developments.

What to consider

Exchange-traded crypto products may simplify access but introduce product structure, custody, issuer and market risks. A crypto ETP is not necessarily a diversified fund.

Key takeaways

Consider custody arrangements, costs, legal structure, liquidity and the possibility of substantial or total loss. Only invest amounts consistent with your risk tolerance.

What crypto exposure means

Crypto assets can include native digital tokens and exchange-traded products linked to their prices. The underlying technologies and legal rights differ. A product that tracks a token is not necessarily equivalent to holding that token directly.

Volatility and product structure

Crypto markets can move sharply and trade around the clock. Investors should understand custody, issuer risk, fees, tracking quality, market liquidity and the possibility of regulatory changes. Concentrated exposure can lead to substantial losses.

Sizing risk appropriately

Any allocation should be considered alongside the broader portfolio and the investor’s ability to absorb a complete loss. Diversification claims should be tested against actual market behaviour rather than assumed from past returns.

Questions to revisit

Before making a decision, ask what could go wrong, which assumptions must hold and how the position would affect your portfolio if markets move against you. Compare the potential benefits with the costs, complexity and liquidity constraints. A decision that fits your goals and time horizon is more useful than trying to predict every market movement.