In recent years the popularity of investing in crypto assets has risen with it being easy to invest in with potential high windfalls but even higher risk of losses.
ARE CRYPTO ASSETS, AND IN PARTICULAR CRYPTOCURRENCY, AS SAFE AND AS RELIABLE AS WE THINK?
On 05 June 2023, the SEC in America, filed lawsuits against Binance and Coinbase, two of the largest crypto asset exchanges, over concerns they were operating as unregistered exchanges and brokers. The crypto market also remain unregulated – there are no authorities to complain to should a particular crypto asset turn out to be fraudulent.
Looking closely at the definition of “Cryptocurrency”, the Bank of England defines this term in two parts – “crypto”, to mean “hidden” or “secret” which reflects the secure technology behind crypto assets and “currency” which means an electronic type of cash.
Crypto assets are wholly virtual assets with nothing tangible to back them up or a governing body to assist should something go wrong with them i.e. if a company is made insolvent you will lose the funds which you have invested. They are not the same as having cash in the bank which you can withdraw and spend within your local shop.
As a result of this, they are extremely volatile, and commonly referred to as “non-stable” assets. For example the price of say Bitcoin can increase by as much as 65% and also decrease by as much as 25% in one single day. By way of a comparison, since 2014, oil prices have fluctuated by no more than 10%. You just have to have a look at the live valuation prices to see how the value of crypto assets can chance on a minute by minute basis.
WHAT IS BEING DONE TO COMBAT THE EXTREME VOLATILITY WITHIN CRYPTO ASSETS?
Less volatile crypto assets, such as Stablecoins, have increased in popularity. Unlike traditional crypto assets, Stablecoins are backed by an asset, such as the US Dollar or gold, which reduces the volatility in the value of the asset. The purpose is to try and stabilise the value of the asset so this is more reliable than “non-stable” crypto assets. When backed by more traditional assets, Stablecoins are viewed as being akin to a cash investment subject to same risks as investing within the stock market for example. However, in some cases Stablecoins can be backed by “non-stable” crypto assets making them subject to the same risk and volatility as the asset which it is backed by.
Whilst the initial appeal of Stablecoins may be enough to tempt people to invest within them, like the global crypto asset market, they are still an unregulated area of financial investment and are still subject to the same risks with fluctuations in the stock market or world economy (dependent on the asset it is backed by).
There are calls for the crypto market to be backed by a regulator to ensure people are aware of key information before deciding to invest within them – information such as how an asset is “vetted” before people can invest with it and how people’s assets are safeguarded once an investment has been made.
Whilst we cannot give you financial advice on where you should invest your funds, we can assist in advising you as to your financial claims arising in the context of divorce, particularly where a large number of yours or your partner’s assets are held within crypto assets. Please do not hesitate to contact us if you would like to discuss your situation.