CBA is jumping on the crypto bandwagon, should you?

There is an increasing number of Australians entering the world of cryptocurrencies in the hope of chasing high returns, yet many are blissfully unaware of the inherent risks involved. Recent research suggests that one in five Australians are now either investing or intend investing in cryptocurrencies in the near future.

In response to this, the Commonwealth Bank announced this week that it would launch a new service that allows customers to buy and sell crypto assets. This follows ASIC's announcement in July that it is looking to regulate cryptocurrencies and crypto assets, as outlined in the paper Senate Select Committee on Australia as a Technology and Financial Centre.

Until recently, trading cryptocurrencies was considered very high risk, as it was largely unregulated, which encouraged dodgy practices by some providers. However, the news this week by CBA and the intentions of ASIC to regulate this market does add some respectability, which I believe will reduce some of the risks Australians have been subjected to when trading cryptocurrencies.

That said, many investors fail to learn from the mistakes of the past and cryptocurrencies are just the latest vehicle investors are jumping into in the hope of making some quick gains.

In the last few decades, investors have chased futures, options, foreign exchange, contracts for difference and tech stocks together with a number of dubious schemes. Yet the vast majority of investors who purchased these products with little to no research or education because of the lure of huge gains failed to achieve the speculator profits they were hoping for.

The number one rule to long term success in any market is to understand the vehicle you are investing in and to manage the risks of that investment and the crypto market is no different.

The best and worst performing sectors this week

The best performing sectors include Healthcare up more than 3% followed by Communication Services and Industrials, which are both up more than 2%. The worst performing sectors include Energy down more than 1% followed by Materials, which is just in the red, while the Financial sector is just in the green so far this week.

The best performers in the S&P/ASX top 100 stocks include Charter Hall Group up more than 11% followed by AMP up more than 10% and Cleanaway Waste Management up more than 9%. The worst performing stocks include Domino's Pizza down more than 14% followed by Westpac down more than 9% and IGO down more than 5%.

What's next for the Australian share market

The Australian stock market traded up this week in its strongest move in four weeks and is so far closing at its highest level since early September. If the market closes high on Friday, this may finally signal the end to the constant indecision we have been experiencing over the last few months.

In stark contrast to last week where 18 of the top 20 stocks ended the week in the red, currently only six are in negative territory this week with NAB only just in the red. Interestingly, while the All Ordinaries Index is up nearly 1.5%, both the Financial and Materials sectors have been flat with the market largely being driven by the mid and small cap stocks this week. This is a concern because if both the Materials and Financial sector move down they will take the market with it.

The Financial sector is the largest in our market and this year it has been the best performer up more than 25%, while Materials is the second largest sector and is down more than 5%. History shows that the best performing sector one year is generally not the best sector the following year, so Financials may be in for a down move in 2022.

While I indicated that the market may fall away this week, the fact it has risen is a good sign because if it continues to rise next week, I am confident it will trade up past the all-time high before the end of the year.

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