How do you pick a good cryptocurrency fund?

Over the last few weeks, we’ve had advisors telling others to learn about cryptocurrency, so they can get their clients involved. We’ve also had other advisors saying stay out of it: it’s just speculation, not investment.

But, the fact is there are about 13,000 funds on the market – and 10,000 aren’t expected to survive. So, how can you pick a winner for clients who might want to try investing in it?

Dorian Banks, CEO of Looking Glass Labs in Vancouver, who uses crypto and advises colleagues on what to look for and avoid, shared some of his wisdom with Wealth Professional.

“Be careful because there are a few more popping up every day because it’s so easy to create them,” he said. “What’s not easy to do is to create real value behind them. A lot of them are quire fly-by-night. So, you’ve got to put some thought into this or you could really be gambling with your money.”

Banks said put your money into crypto that has a known team behind it, that isn’t anonymous, and has had success in the tech world in the past. The team also needs to have a plan and publish a roadmap, and show that it has some utility for the currency.

“It’s one thing to create a coin, but if it doesn’t have any use, no one’s going to want to own or use it,” he said. “If it has some utility, it’s more likely to be a better long-term hold.”

Take cro coin, for instance, since Crypto.com just paid $700 million for naming rights to the Staples Centre in Los Angeles. Its VISA cards are linked to pure crypto accounts. So, Banks said you must buy the coin to apply for the VISA card, which is what he’s done.

Dapper Labs in Burnaby, B.C., also created the flow crypto coin. It’s a blockchain token that is built to support gaming applications, and fans need it to buy, sell, and trade officially licensed video highlights from the National Basketball Association.

“Flow really starts to look like a good long-term hold when some of the blue chip assets are coming on board the flow blockchain and the only way you can access them is via this flow coin,” said Banks.

What’s drawing people to things like this is the fact that it’s a movement away from government control and the deflationary nature of currency, which occurs over time as inflation eats away at the value and you lose buying power. He said that if you pick the right crypto – with proven staying power and a track record – you can gain assets as it increases in value.

“We try to only invest in crypto coins that have this utility and a team behind it, so they have a reason to exist – as opposed to probably 98% of them,” said Banks. “Those are the fly-by night, pump and dump stuff, which may have been created by someone anonymous and have a fake roadmap behind them.

“You’re looking for people you can trust who really do what they say they’re going to do.”

Banks said investing in the top 10 coins – such as Bitcoin and Ethereum – can provide a financial lift and be more profitable than keeping your money in the bank since some of the currency is gaining 5% to 25% a year, even though there’s more volatility.

Crypto-currency exchange-traded funds (ETFs) that are on the Toronto Stock Exchange can also be a good bet because they are governed by some regulation, as opposed to those that aren’t traded on the exchanges. They also have more of a paper trail associated with them so you can learn more about the funds before you buy them.

The big thing Banks warned about was funds that are associated with securities. They may be offering good short-term returns just now, but he said they won’t meet the Securities’ Commission’s regulations and there won’t be time to sell them before there’s a crackdown. So, he said, “there’s going to be a bit of a bloodbath” for those selling – and buying – them.

“The big thing is to get under the hood and really look behind it to track what it’s all about,” said Banks. ”Do your due diligence because this really is going to change the way that the monetary systems work around the world. It is the way of the future.”