Smart investors are offsetting crypto risk by diversifying with lower-risk and ethical investments, says Plum
European money management fintech Plum has shared new data on how its customers are reacting to the current hype around cryptocurrencies. The highly volatile asset class has seen increasing popularity among Plum customers since October, with many choosing to diversify their portfolio further to balance out the risk.
Cryptocurrencies have enjoyed a period of intense popularity in Europe and beyond since October 2020, thanks to increased savings during the Covid-19 pandemic, adoption of the technology by big corporations and even governments, and endorsements from influential public figures like Elon Musk. Bitcoin, for example, saw stable prices until October 2020 and has since experienced high volatility, which hit a peak in April and early May 2021.
Plum, which offers low-cost, easy-access investing in mutual funds via its app, has observed a large increase in customers investing in cryptocurrencies, despite crypto not being available on its platform yet. When looking at customer spending data between October 2020 and May 2021, the total amount invested in crypto among Plum customers has increased by 172 per cent. The company has also noted that crypto investors who use Plum are younger on average than regular Plum investors – average age 31 compared to 33.
Plum found that since October, the portfolio mix of customers who invest in crypto has changed over time, reflecting a desire to diversify during times of high volatility. Crypto investors had invested USD8 million in Plum in October, with 55 per cent of this being in Tech Giants, the company’s high growth technology fund. By May 2021, this had grown to USD21 million, with 48 per cent of it in Tech Giants, showing a 13 per cent drop in preference since October.
Similarly, The Medic, which offers shares of healthcare, pharmaceutical and biotechnology companies, saw an even bigger drop of 34 per cent. Given that Tech Giants and The Medic are two of Plum’s higher risk funds, this could suggest that crypto investors are increasingly keen to diversify their portfolios, perhaps to mitigate against the volatility they are seeing with their crypto investments.
In a further discovery, Plum also found that its Clean & Green fund has been growing in popularity among crypto investors since October. Clean & Green, which invests in companies that meet the fund manager’s criteria for ethics, saw an increase of 59 per cent among Plum investors that spent on crypto. This is further evidence of increased diversification, but could also indicate a desire among customers to offset the negative impact of crypto on the environment through ESG investing.
This analysis into crypto investing comes as Plum begins a major expansion of its investment offering in the second half of 2021. The company recently added its first pension product to the app, and is aiming to have stock trading and crypto exposure available later in the year. Plum is forecasted to have more than USD1.5 billion saved for customers by the end of 2021.
Thanos Bismpigiannis, Plum’s Head of Product – Wealth, says: “Investment industry stalwarts like Warren Buffett have been vocal about the risks of investing everything in volatile cryptocurrencies. But we’ve seen that, in general, investors are using other investment assets to balance out the risks associated with crypto, both to their pocket and to the environment. This suggests a more considered approach than they are usually given credit for, much closer to the diversification fundamentals of investing that someone like Buffett promotes. There are signs that crypto will become more of a legitimate asset class, and could in the future be an important option for investors who have the capacity and flexibility in their portfolio to manage the risk. It’s great to see so much enthusiasm among our own customers for diversified investing ahead of our investment expansion later this year.”