Cryptocurrencies have now become a financial asset in their own right. Thus, it raises the question of whether it might be worthwhile to include them in one's investment plan to increase diversification. 

We talked about it in this interview with Debora Rosciani, a journalist and host for Radio24 (IlSole24Ore group), Italy's top financial radio station.

By watching the interview you’ll discover: 

- What do cryptos offer that is different from traditional investments 

- Why you should include cryptos in your portfolio and what precautions should be taken

- Digital innovation and crypto diffusion: why to invest for the long term

Enjoy! 😎

Transcription

Debora

What does crypto offer that differs from traditional investments? We'll talk about this with Andrea Unger, the only four-time World Trading Champion.

Welcome back! Today we're going to be talking about cryptocurrencies. Cryptocurrencies represent a major trend and innovation, leading central banks to also work on their own digital currencies. We're talking about a highly engaging technology and an investment category in which we're wondering how much and in which manner we should invest.

When we talk about crypto perhaps not everyone has a clear idea of the financial structure behind this sector. Too many people think that it's an investment instrument identical to all the others.

I'd like to share with you a recent statement by Fabio Panetta, a member of the Executive Board of the European Central Bank, who said, "Crypto-assets don't just represent a high-risk speculative investment. They even pose a genuine threat to financial stability. So, we must take action to bring crypto-assets back into a clear regulatory framework that today is still missing." So, this appears to be an outright attack, if we can call it that, towards the 10,000 crypto assets currently in circulation and have a total value of $1.3 trillion.

But they lack the fundamentals. They're frequently used for illicit purposes, have high volatility in terms of price, and in many cases, Panetta said, are subject to embezzlement. So, we need to clarify what kind of market we're talking about and especially today we're talking about crypto trading. And obviously, we’re going to be doing that with Andrea Unger, the only one to have won the world trading championship four times in the Futures category. Andrea, welcome back!

Andrea

Hello Debora! Good morning everyone!

Debora

So, the purpose of our webinar is to explain to our audience that cryptos allow for diversification but we need to be very clear about some aspects.

At this moment, moreover, crypto has captured the attention of investors who were previously interested in other markets, such as for example Forex. Today they're shifting towards this world.

By the way, Andrea, there are so many types of investments that have recently appeared on the market and that have a strong digital connotation. Imagine that you are at a dinner party with friends, a circumstance that I can imagine happens to you very often indeed, and you are asked...

Andrea

Well with Covid not so much.

Debora

Well, yes of course, with Covid that's true, but even if they were smaller dinners, perhaps many people ask you some clarification about these new ways of investing, starting with cryptos. So, if you were asked a question like this: what do cryptos offer that differs from traditional investments? Where would you start to explain it in a clear and simple way? Maybe let's also try to explain what is meant by "traditional investments," ranging from government bonds, stocks, hedge funds, currencies, etc. 

Andrea

Exactly

Debora 

Because the range is wide. Maybe traditional investments with a digital approach. I don't know, what would you say?

Andrea

Well, I wouldn't recommend investing in crypto just because of the underlying technology. Look, I may be wrong but I still see them as the future, in the sense that I think there will still be a strong movement in this market that, I suppose, will also make it lose some dead branches. So, what will remain is what truly makes sense to remain. You know, the crypto world is an asset and that's why investors can take it into account. And as for the gamblers… I repeat it: let them go and buy the Shiba Inu of the moment and hope for the best.

But the investor who wants to diversify his investments can certainly consider cryptocurrencies since they are an asset. Like saying: I want to invest in real estate, I want to invest in government bonds, I want to invest in gold and the stock market, why not crypto as well?

I'll say another thing. This kind of diversification is mainly in terms of approach, because today, at the end of the day, if we take a good look at Bitcoin, which is still the one that reigns over the crypto world, at the investment level I mean, it pretty much follows what the stock index does. In the sense that the SP 500, the quintessential U.S. market index, when it goes down - Bitcoin also goes down, when it goes up - Bitcoin also goes up. They walk pretty close to each other. It's not that they are exactly correlated, however there is a similar trend. So, it's not like I'm diversifying on two completely different assets if I invest in stocks and Bitcoin. And that's still the case today. 

Then of course there will be a crypto that maybe does 1000% while Bitcoin goes down. But again, we go back to what we pointed before, that is to say that you have to guess which one it is. And as an investor, that would no longer be an investment, it would be pure speculation. As an investor who wants to diversify, the crypto market is an option, also considering that it's the future, so investing from a long-term perspective, but obviously in a controlled way. I mean, I'm not saying that crypto taps will be closed overnight. I'm just saying that it's still an extremely volatile world. So, I have to be aware that the assets that I put in that world will have greater fluctuations than all those others. So if I reason that way and subject the fluctuations to risk, I'll obviously have to invest less money in crypto because I know that the fluctuations will be wider due to the high volatility of the market.

Debora

These are the reasons why the European Central Bank recommends that public disclosure and transparency requirements should be improved. And so even for investments like these, perhaps you should have a prospectus where you can get information and documentation on how these fluctuations work, and where they take place, what are the main reasons that make this market particularly volatile at certain times. And last but not least, Andrea, I don't know how fascinated you are with this issue, but I guess you have to consider it as well, because the whole tax framework is missing, which is another part of all this reasoning which is however not something to be ignored, I’d say. 

Andrea

Well, in Italy, which is where I live, the Internal Revenue Service is already on the ball. In the sense that it has already made giant strides and adding to the headache of us traders is now the crypto part. 

Yes, it's a complicated framework that adds even more weight to what's behind it. They are lining up on that as well, though. For now, they've made assumptions, and based on those assumptions, one has to declare what they have or they don't have, and what they've done. And it only complicates life. Because Binance for example, and I say Binance only because it's probably the most popular crypto exchange, isn't entirely on track with giving us the information we need when we have to make our tax return. If you haven't saved all the transactions, you’re going to struggle to retrieve the information needed to then fill out the various modules to pay taxes.

So, I want to say yes, things are moving slowly. On the issue of the prospectus, let's face it, there's a lot of hypocrisy there, to protect oneself in the face of possible complaints. Because the prospectuses nowadays tell us that there is a substantial risk of... All right, I know that, but it doesn't tell me that much. And then I challenge anybody to read those. I insist that a person must do his or her homework but maybe not with the little phrase "smoking seriously harms health." Maybe it takes something more than that.

Debora

What we have to take note of, however, is that there's a growing demand for digital activities. I'll give you a couple of percentages, Andrea. In 2021 about 16% of U.S. savers held crypto assets, and 10% of Eurozone savers held crypto assets. These are not marginal percentages. And all of this has also led central banks to fully engage in digital innovation. And all central banks, from the United States to China to Europe, are studying the establishment of their own digital currency. Digital yuan, digital dollar, digital euro. What are your thoughts on all this?

Andrea

They want to keep up with the times. They have to keep up with the times. And they also have to give the impression that they are on the ball. In the sense that whatever the technological advantages of a certain type of currency may be, it should no longer be an exclusive advantage of cryptos. Because if I can digitize as much as possible what I do today, I'll put myself on the same level, at least in technological terms. And today let's face it, I don't think anybody would sleep easy having everything in crypto and not a single euro in their pocket. I mean, I can't go to the bakers' and tell him, "Can I pay you in Bitcoin?" 

So, clearly, I need euros or dollars and that's why it’s normal nowadays to still think in euros or dollars. Even those who were to make a bang, would still change that money into dollars or euros and enjoy life with the million or millions of dollars or euros he accumulated through crypto speculation. He wouldn't think of enjoying life with the accumulated bitcoins. So, they're still seen as a parallel world but then you have to return to the real world when you bring them home.

That's why the real world in some way has to be attached so as not to create too much of a gap, in my view, that would put it into trouble if and when that parallel world starts to take on more "human" features and therefore be more palatable. And many are trying to make credit card payments in cryptocurrency "normal." In case one day this will all be normally accepted, the mainstream world will have to be just as tech-savvy to be able to say, "yeah, they do it, but look, we're already doing it too, why do you have to turn to them?" I think they want to align and obviously do it in the direction of all the advantages that technology offers.

Debora

Wrapping up Andrea, what are we talking about when we talk about the Unger Method applied to systematic crypto trading, so let's end our talk with some so-called instructions for use.

Andrea

Well, the Unger Method is, as I've always said, a common-sense method of developing trading systems and approaching the market. I do it numerically, and when I say "numerically" you shouldn't be afraid and think, "Oh my Gosh, now he's going to bring up NASA numbers".

It's a step-by-step method that plans what needs to be done. It verifies strategies based on the past trends to hypothesize how they may perform in the future, thus studying the market trends. This is for both traditional systems and other forms of investment where there are edges to be discovered in favor of the investor that must be evaluated and then schematized, to build a plan.

So the Unger Method takes all the pieces, lines them up and decides what needs to be done. It decides this before it puts money anywhere. When it invests, it already has everything clear about what must be done, let's say.

Debora

Let's close on this conversation with Andrea Unger who has shared with us the correct spirit, the right one, the one suitable for investing in this very complex market. But it's a constantly evolving market and I think that we can say that this will certainly not be the last of our conversations on this topic. Thank you and keep up the good work!

Andrea

Thank you and goodbye everyone!

Debora

Before we say goodbye, here's a last service announcement. For all the people who'd like to delve deeper into the concepts we have explored during our conversation, you can order Andrea Unger's book, "The Unger Method," which is available on the Unger Academy website. You'll receive the book at your doorstep. It's free, and you only have to cover the shipping costs: so happy reading, everybody

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