Many governments and central banks have mentioned their desire to issue cryptocurrencies. More importantly, out of 1,800 outstanding cryptos plus any new cryptocurrencies issued in the future, are you confident you could pick the survivor? What is the outlook for cryptocurrencies?Īlthough cryptocurrencies seem to move up and down with risk appetite, their price graphs make the 17th-century tulip craze look like a triple-A rated government bond. Theoretically, anything can go into a diversified portfolio (art, race horses, timber) but most of these idiosyncratic assets have enough history to justify an analysis before placing them in a portfolio. ![]() The extremely short history of crypto assets means this is impossible to do and the risk too high to warrant their inclusion in portfolios. But gold has been around for thousands of years as a payment method and investment meaning there is some way of measuring its worth and the correlation with other asset classes. Some adopters of bitcoin have heralded the asset as ‘the new gold’, suggesting it could be used as a defensive portion of a diversified portfolio. The Financial Conduct Authority’s near-total ban on cryptocurrency investment for UK retail investors shows that it’s a matter of time before stronger restrictions are slapped on these assets in many parts of the world. And recent regulatory changes in the UK provide stark evidence as to the concerns for investors. It’s no surprise that many governments, including South Korea, China and France are clamping down on cryptocurrencies such as bitcoin. ![]() ‘Mining’ – where bitcoin transactions are digitally verified and added to the public ‘blockchain’ ledger – is highly time-consuming, whereas equities and bonds can be sold in a fraction of a second. Transferability: it takes a long time and huge efforts to buy or sell (particularly to sell) bitcoin.The private keys and digital wallets are inherently vulnerable and intermediaries charge enormous amounts to deal with that basic safety issue. One astonishing statistic is that, at the time of writing, 20% of bitcoin has been lost, unrecoverable. This is unlike central bank digital currencies (CBDCs) which are regulated. With unregulated transferable cryptocurrencies such as bitcoin there is no central bank or public authority issuing or guaranteeing the asset. Safety: other investments have custodians, registries, etc.Should bitcoin be worth US$10,000, US$100, US$1m or 10 cents? There is no measurement to help make that decision. There may be scarcity, because only a limited number of bitcoins is produced, but scarcity does not create value unless the product has an economic purpose. This is unlike equities which can be valued by their earnings or cash flow, bonds by yield, property by rental income and location and commodities by their industrial usage. Valuation: bitcoin has no proper valuation method or underlying value.To us, any suitable investment requires a valuation methodology, safe custody and easy transferability. But do investors understand the risks and does the underlying technology even matter? Bitcoin investing - the risks Its meteoric rise has drawn many investors, with some believing that the underlying blockchain technology (blockchain is a digital ledger in which transactions made in cryptocurrencies are recorded chronologically and publicly) could become one of the most powerful tools ever given to civilisation. I have read and understood the legal information and risk warnings.īy clicking the 'Accept' button, you agree to abide by the terms and conditions listed below.īitcoin is the best known of the 1,800-odd cryptocurrencies. ![]() I confirm that I am one of the categories of professional mentioned above, and that where applicable I am authorised and regulated by the Financial Conduct Authority or equivalent regulated body given my jurisdiction, location, and profession. The website is for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell investments or related financial instruments. Please visit our homepage for information and resources for private clients. It is not intended for direct use by private investors or onward distribution to retail clients or the general public. The information in this area of the website is aimed at financial advisers, corporate service providers, wealth advisers, and legal and accountancy professionals. Please note these are subject to change at any time.
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