Gold expert urges caution on cryptocurrency investment craze

ABC Bullion general manager Nicholas Frappell believes gold and silver offer a more stable investment proposition compared with the recent trend towards cryptocurrencies like bitcoin.

The GM explained that while cryptocurrencies had “enjoyed outrageous fortune” in 2017 and offered “huge returns of late”, he also believed they were not well understood and that investors may overlook their weaknesses in an effort to find a viable alternative to fiat currency.

“The problems that stand out for investors is that unlike almost all ‘Crypto’, gold and silver are traded on a combination of regulated exchanges in the true meaning of the word, or on markets via regulated intermediaries,” he told Australian Mining.

“Huge protections exist to aid investors that are not apparent in the crypto-currency space. This will change, as regulators in major economies seek to extend their powers to the trading of ‘virtual currencies’.

“It would be unfair to compare something like bitcoin with an asset like gold, whose use as money goes back to the beginnings of recorded time, but the fact is that there isn’t a lot of depth to the market at the moment, and it is tough to gauge just how hard the market would fall to clear if a large group of cryptocurrency investors decided to exit the market at the same time.”

In America, the US Commodities Futures Trading Commission (CFTC) is due to hold a meeting at the end of January to discuss the status of virtual currencies; CFTC chair J. Christopher Giancarlo presented a list of the potential threats posed by virtual currencies, stating that they presented both significant opportunities and challenges, given their nascent status:

“As a Federal market regulator, the CFTC is cognisant of the considerable risks of virtual currencies like Bitcoin,” he said.

“Risks associated with virtual currencies include: operational risks of unregulated and unsupervised trading platforms; cybersecurity risks of hackable trading platforms and virtual currency wallets; speculative risks of extremely volatile price moves; and fraud and manipulation risks through traditional market abuses of pump and dump schemes, insider trading, false disclosure, Ponzi schemes and other forms of investor fraud and market manipulation.”

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