Cryptocurrencies, once a niche investment for tech-savvy thrill-seekers, are inching closer to mainstream legitimacy. With policy shifts, regulatory developments, and increasing institutional adoption, 2025 presents both opportunities and challenges for crypto-curious investors.

Why Crypto is Gaining Traction

In 2024, a turning point occurred with the approval of the first spot Bitcoin ETFs by the U.S. Securities and Exchange Commission (SEC), followed by similar approvals in Australia. These ETFs attracted $60 billion in investments globally, signaling growing confidence in cryptocurrencies as a legitimate asset class.

The re-election of Donald Trump has also spurred optimism. His administration has championed pro-crypto policies, including appointing advocates like Paul Atkins to the SEC and David Sacks as a White House strategist for cryptocurrency and AI. Plans to classify digital assets and potentially stockpile Bitcoin as a strategic reserve further underscore the government’s intent to integrate crypto into the broader economy.

Despite these developments, mainstream investors remain cautious. Regulatory uncertainty, price volatility, and questions around valuation persist, making a disciplined approach to cryptocurrency investment essential.

The Case for Crypto in a Portfolio

Growth Potential and Diversification

Cryptocurrencies like Bitcoin and Ethereum delivered impressive returns in 2024, with Bitcoin surging 120% to $93,000 by year-end. These assets often move independently of traditional markets, providing diversification benefits.

Legitimacy Through Regulation

In Australia, debates are ongoing about whether Bitcoin and Ethereum should be classified as financial products. Clearer regulations could require exchanges to be licensed, further legitimizing the asset class and providing investors with more confidence.

How to Approach Cryptocurrency Investments

1. Start with Reputable Coins

There are nearly 11,000 cryptocurrencies, but most experts recommend sticking with established coins like Bitcoin, Ethereum, and Solana, which account for over 50% of trading volume. These assets are seen as relatively stable compared to smaller, more speculative coins.

Ting Wang, CEO of Brisbane-based Coinstash, suggests these major coins offer an inflation hedge and asset diversification. For those concerned about high prices, fractional investments in Bitcoin (measured in satoshis) provide accessible entry points.

2. Consider ETFs and Managed Funds for Simplicity

For investors uncomfortable with the complexities of buying and storing crypto directly, ETFs that track cryptocurrency prices offer a simpler alternative. ETFs come with transparent fees and limited trading hours, reducing the risk of impulsive decisions. Bitcoin and Ethereum ETFs are already available in the U.S. and Australia, with others potentially on the horizon. Merkle Tree Capital works closely with Cadre Capital Partners, to allow investors and clients to gain exposure to the Cryptocurrency market, without the high barriers to entry.

3. Keep Allocations Modest

Cryptocurrency should be a small part of a diversified portfolio. It is recommended to limit crypto exposure to 2% of total investments. This ensures that even in a market downturn, the impact on overall portfolio performance remains minimal, as with any higher risk investment class.

4. Use Dollar Cost Averaging

To mitigate the impact of volatility, consider dollar cost averaging (DCA). By investing fixed amounts at regular intervals, you can reduce the risk of poorly timed purchases. It is also a good plan to have a sale price in mind, so you can trigger a sale when you think the market has reached close to its peak, if investing through Cadre Capital Partners, we will help you through that process.

5. Prioritise Security

If buying cryptocurrencies directly, safe storage is crucial. The best practice is to use “cold storage,” or offline wallets, to protect assets from hacking.

The Risks of Investing in Crypto

Volatility

Price swings are a hallmark of cryptocurrencies. For example, Bitcoin has experienced annual declines of up to 65% in past bear markets. While larger market capitalization may reduce volatility over time, crypto remains a high-risk asset.

Valuation Challenges

Unlike traditional assets, cryptocurrencies lack intrinsic value anchors such as dividends or interest. This makes it difficult to determine a fair price, leading to concerns about speculative bubbles.

Regulatory Uncertainty

Scandals like the collapse of FTX and regulatory actions against exchanges like Binance and Kraken highlight the importance of due diligence. Investors should prioritize exchanges and brokers with robust compliance and transparency.

Final Considerations

Opportunity Cost

Investing in crypto often means diverting funds from traditional assets with proven long-term returns. Before allocating funds to crypto, ensure it aligns with your overall financial goals and risk tolerance.

Seek Professional Guidance

While regulatory hurdles currently limit financial advisers’ ability to recommend crypto, many are monitoring the space closely. Pedro Marin, managing director at Marin Wealth, notes that better regulatory frameworks could pave the way for more comprehensive advice in the future.

If you would like to get involved in Cryptocurrency investing, please reach out to Cadre Capital Partners and we will be able to assist you.