Cryptocurrencies have continued their meteoric rise in recent weeks, with alternative players such as ether and dogecoin gaining ground on their biggest rival bitcoin.
While retail traders on social media are bullish about crypto’s prospects, the City and institutional investors remain split on whether the digital assets represent a market opportunity or a whale-sized risk.
Bank of England governor Andrew Bailey told reporters on 6 May that those who invest in crypto assets should “buy them only if you’re prepared to lose all your money”.
But a few hours after he spoke, ether rose to a fresh record high of above $3,556 as traders seemingly ignored the warnings.
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To find out more about whether or not cryptocurrencies might have a future in the Square Mile, Financial News asked some of the experts for their opinions.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown
“Crypto mania is hard to ignore, as every day more speculators join the hunt for the next stellar success, pushing up prices as they try to spot a winner which will ride the same trajectory as bitcoin. Many crypto coins being pushed into this slot machine of speculation are being sold on the promise of being the great disruptors of the current payments system.
But who will come out on top in the future payments world is still very much a bet, with fierce competition amongst new and more established players as rapid changes rip through the industry. Whereas some coins promise a defined use case, demand is still coming mainly from traders hoping to catch a short ride on a wave of price rises, rather than investing in them over the longer term confident in their development as a means for exchange.
Traders buying in late with expectation of celestial rewards are likely to be sorely disappointed when the price falls back to earth with a bump. Volatility is the name of the game in the crypto world, with coins on a rollercoaster ride from week to week and predicting the point at which demand subsides and prices begin to fall is very difficult, if not impossible.
Investors should treat trading in cryptocurrencies with extreme caution, and dabble at the edges of their investment portfolio, only with money they can afford to lose.”
Adam Grimsley, investment director of private credit at Aberdeen Standard Investments
“The main reason City investors should care about crypto is because it provides the most visible reflection of how technology is shifting the way investors allocate their money. Crypto certainly has caught the attention and imagination of millennials — earlier this year bitcoin hit $1trn in market value after just 12 years, while Apple took around 40 years to hit the same milestone. Apple versus bitcoin is a crude comparison, but both do depend on technological adoption for their value. Crypto looks like it is here to stay in one shape or another.
“The vast majority of the crypto market is uninvestable and of zero interest for professional investors”
However, taking an interest is very different from investing. The vast majority of the crypto market is uninvestable and of zero interest for professional investors. Even as the most established of all the assets, bitcoin is still untested, with very thin market liquidity that results in huge price swings.
So skilful, insightful, digital investors who can stomach risk may well now be looking at what is going to be Crypto 2.0; looking at assets and projects that can build upon the success stories in crypto markets and make use of its early infrastructure but also be designed in a more institutional-investor-friendly manner. There are sure to be some very interesting opportunities going forward in this space.
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Bitcoin and ether are different types of cryptoassets. Bitcoin really serves as a store of value or ‘digital gold’ whilst ether is far more dynamic in its facilitation of smart contracts and decentralised apps. But for professional investors who may be looking at stepping into crypto, bitcoin is still the dominant asset and presents the most liquid, transparent, regulated part of the market. It is still the benchmark by which all other assets are compared. I don’t think that’s going to change anytime soon.”
Stephen Yiu, chief investment officer of the £780m Blue Whale Growth Fund
“As an equity investor, you don’t have to hold cryptoassets in your fund for it to impact your portfolio and investment process. For us, cryptocurrencies represent not just an asset class but a way to evaluate how well a company is able to evolve with the times. The way a management team — especially one in financial services — treats cryptocurrencies speaks not just to their strategic vision but also their ability to execute.
Visa and Mastercard, both among our top 10 holdings, started supporting cryptocurrency transactions this year but started making plans several years ago. PayPal, a smaller holding in the fund due to valuation, took this further by allowing consumers to pay and get paid using crypto, filing patents for its technology as early as 2018. All three companies started preparing before the crypto boom arose. We like companies that invest strategically ahead of opportunities.”
Danni Hewson, financial analyst at AJ Bell
“For years traditional investors have poked fun at cryptocurrency adopters but at the moment, the latter are the ones having a laugh. Values have skyrocketed, millionaires have been made and mainstream institutions like Sotheby’s are jumping on the bandwagon.
“When something that started as a joke ends up with a bigger market capitalisation than companies like Ford or BP, it does demand a second look”
Crypto isn’t just cool anymore; it’s becoming viable. It could be a touch of ‘fear of missing out’ pushing day traders and institutional investors to dip their toes into the water but when something that started as a joke ends up with a bigger market capitalisation than companies like Ford or BP, it does demand a second look.
That said, many of the reasons not to invest still exist — but with many Americans suddenly finding themselves in receipt of free money courtesy of the US government, speculating might seem less of a risk. And it is still speculation in an area ripe for regulation and potentially on the edge of a very steep cliff. For all the highs generated by social media and TV appearances, the real high could come if interest rates start to rise, eroding the value of flat money.
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But as with any high, an adjustment generally follows. There’s no getting away from the fact the ‘crypto-verse’ has disrupted the normal order of business and for that reason alone, all investors should be paying close attention.”
Jonathan Rowland, executive chairman of London-listed digital asset manager Mode
“Let’s remember that bitcoin was the best performing asset class in 2020 and is still significantly up from this time last year. We’ve seen institutional investors like BlackRock and JPMorgan increasingly pile in and that brings long term stability for bitcoin. Governments and regulators are also starting to embrace the value of cryptocurrencies and are finally waking up to the benefits it brings as an investment and store of value.
“We’ve seen institutional investors like BlackRock and JPMorgan increasingly pile in and that brings long term stability for bitcoin”
The investors we talk to are increasingly worried about missing out; there might be some volatility but ultimately bitcoin is still at the beginning of the adoption curve and so has a long growth path ahead. The majority of our users buy bitcoin to hold, and we remain bullish. Last year we became the first UK publicly listed company to make a significant purchase of bitcoin as part of our treasury investment strategy to protect against currency debasement. Investors looking to hedge against rising inflation can seek refuge in bitcoin.
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As institutional investors continue to embrace cryptocurrencies and trading platforms increasingly offer investors an easy and convenient way to tap into the bitcoin market, we will continue to see coin prices rise. Ether has enjoyed a rally but bitcoin will likely remain ahead as the most liquid, established and institutionally-backed coin. Bitcoin is not about short-term gains but long-term value creation.”
*These responses have been edited and condensed for clarity.
To contact the author of this story with feedback or news, email Emily Nicolle