In this article, I am going to give you 5 practical tips for investing in cryptocurrencies using the Bloomberg terminal, the most powerful and prestigious tool in the financial sector that you will find in our FILAB finance and investment laboratories. With it, you will be able to access information, analysis, and news about the cryptocurrency market. We will also recommend some trading platforms that will allow you to buy and sell these assets quickly and safely. Finally, you will discover the importance of climate change and ESG criteria for this type of investment.
1. What are cryptocurrencies?
Cryptocurrencies are digital assets that function as a medium of exchange, based on Blockchain technology. Its popularity has grown driven by the rise of Bitcoin, the world’s first cryptocurrency.
2. Five tips for investing in cryptocurrencies like a smart investor
I. Find out about the cryptocurrency market
The first step to investing in cryptocurrencies is to inform yourself about the market, its characteristics, its trends, and its risks. To do this, you can use the Bloomberg Terminal tool, which gives you access to extensive coverage of markets, industries, companies, and securities across all asset classes.
In particular, you can consult the CRYP <GO> function of the Terminal, where you will find news, data, charts, and alerts on the world’s main cryptocurrencies. You can also access the Bloomberg Crypto Outlook in the BI <GO> (Bloomberg Intelligence) feature, a monthly report that analyzes the status and outlook of the cryptocurrency market.
Additionally, you can follow Bloomberg podcasts and webinars on the topic, such as the Crypto Summit or Crypto 101, where experts and industry leaders share their opinions and experiences in the SMNR <GO> feature or on Bloomberg.
II. Choose the cryptocurrencies you want to invest
The second step is to choose the cryptocurrencies you want to invest in, according to your objectives, your risk profile, and your time horizon. To do this, you can see the Bloomberg Galaxy Crypto Index (BGCI Index) with the DES <GO> function, which offers you a reference to the performance of the world’s main cryptocurrencies.
The BGCI Index is made up of 10 cryptocurrencies: Bitcoin (BTC), Ether (ETH), Cardano (ADA), Bitcoin Cash (BCH), Litecoin (LTC), Chainlink (LINK), Stellar (XLM), Uniswap (UNI), Polkadot (DOT) and Binance Coin (BNB). These cryptocurrencies represent 90% of the global market and are weighted according to their market capitalization.
In BGCI Index you can compare the performance of these cryptocurrencies with each other and with other financial assets, such as stocks, bonds, or commodities. You will also be able to identify the opportunities and risks that each of them presents.
III. Analyze the factors that influence the price of cryptocurrencies
The third step is to analyze the factors that influence the price of cryptocurrencies, both internal and external. To do this, you can use BI <GO>, which offers you exclusive research and information about industries, markets, companies, and countries.
In particular, you can consult BI reports on cryptocurrencies, where you will find detailed analyses on supply and demand, technology, regulation, competition, and other aspects relevant to the market.
You can also use the Bloomberg Terminal Charts tool. G <GO>, Monitors and Alerts ALRT <GO>, which allows you to create personalized applications to view the data and indicators that interest you most. For example, you can create monitors to track the price, volume, volatility, or liquidity of the cryptocurrencies you want to invest in. Additionally, you can create alerts to receive notifications when significant changes occur in the market.
IV. Develop a cryptocurrency investment strategy
The fourth step is to develop a cryptocurrency investment strategy, which defines your objectives, your budget, your risk level, and your time horizon.
To do this, you can use the Bloomberg Terminal, Trading and Risk tool in the MARS <GO> function, which offers you integrated solutions for the analysis and execution of operations. Although for this one you need some permissions.
With the Bloomberg terminal you will be able to access historical data with HP <GO> and real-time data on the CRYP <GO> cryptocurrencies, as well as technical and fundamental analysis tools, such as GP <GO> and TOP <GO>. You can also use valuation, simulation, and optimization models to evaluate the expected return and risk associated with your strategy in the portfolio PORT <GO> function.
In addition, you can create and manage your cryptocurrency portfolio, as well as establish purchase and sale orders with different conditions and criteria. You will also be able to use pre- and post-trade analysis tools to measure the efficiency and impact of your PORT <GO> trades.
V. Choose the right trading platforms to invest in cryptocurrencies
The fifth and final step is to choose the right trading platforms to invest in cryptocurrencies, according to your preferences and needs. To do this, you can use the Bloomberg Anywhere tool, which allows you to access it from anywhere and on any device.
You will be able to connect to different trading platforms that offer cryptocurrency buying and selling services, both centralized and decentralized. Some of the most popular are Binance, Coinbase, Kraken, Uniswap and Sushiswap.
These platforms will allow you to exchange your cryptocurrencies for other fiat money or traditional currencies, as well as take advantage of other investment opportunities, leverage, or staking. Of course, you must take into account the commissions, security, liquidity, and regulation of each of them.
3. Is cryptocurrency trading compatible with climate change and ESG criteria?
Cryptocurrency trading is an activity that generates economic benefits for many investors, but it also has an environmental and social impact that cannot be ignored. Therefore, it is important to analyze whether cryptocurrency trading is compatible with climate change and ESG (environmental, social, and governance) criteria, which are increasingly relevant for responsible investors.
On the one hand, cryptocurrency trading involves high energy consumption, due to the mining process that requires validating transactions in the blockchain. According to the World Economic Forum, Bitcoin’s annual energy consumption is equivalent to the total electricity production of the Netherlands. Additionally, much of this energy comes from non-renewable sources, such as coal or natural gas, contributing to greenhouse gas emissions and global warming.
On the other hand, cryptocurrency trading can also offer some social benefits, such as financial inclusion and economic autonomy. According to Binance Academy, cryptocurrencies can facilitate access to financial services for people who do not have bank accounts or who live in countries with unstable or restrictive monetary systems. Additionally, cryptocurrencies can allow users to be their banks, without depending on intermediaries or centralized authorities.
Choose cryptocurrencies that use more efficient and less energy-consuming consensus systems, such as proof of stake instead of proof of work. Support initiatives that promote the use of renewable energy for cryptocurrency mining, such as the Crypto Climate Accord, which aims to make blockchains run on 100% green energy by 2025 and that the entire cryptocurrency industry achieves net zero emissions by 2040.
In conclusion, cryptocurrency trading is an activity that has a significant environmental and social impact that must be considered by investors who want to act responsibly in the face of climate change and ESG criteria. However, there are also ways to reduce this impact and take advantage of the opportunities offered by the new “blockchain” technology in cryptocurrencies, to generate economic, social, and environmental value.
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