Regulation and the rise of cryptocurrencies

Regulation and the rise of cryptocurrencies

It is described as a free market on steroids.

This time a year ago, the value of one bitcoin was hovering just above the $700 (£521.4) mark; it is now sitting north of $12,000.

Its meteoric rise has made the market nervous, but the recent government announcement about regulating bitcoin is a clear sign that it is here to stay.

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However, the question is whether the advisory market can be convinced en masse that it will be a good place to put their clients’ money.

The rise of bitcoin, a cryptocurrency and worldwide payment system, has been so stratospheric that investment experts fear it is a bubble waiting to burst.

Ben Willis, investment manager at Whitechurch Securities, said: “At the moment it is gaining significant attraction, which leads us to be very nervous about it because it has become a bit of a bubble and the price has been very volatile.


Key Points

Bitcoin currency has soared to above $12,000.

Advisers are getting more approaches from the public about bitcoin.

The Treasury's decision to regulate it has given the cryptocurrency more longevity.


“It is very speculative. But I do think that the whole viability of cryptocurrency – because of the way it is independently audited on a blockchain, the way you can transact and how many people have adopted cryptocurrency as payment – can only increase."

Public interest means advisers are getting more approaches from clients who want to talk about cryptocurrency.

During IFA events, Mr Willis said, theyhave been asked about cryptocurrency and what they should be telling their clients.

Mr Willis added: “Any good adviser should have some understanding of the risks involved. It is perfectly fine to have some of your money on a speculative asset like bitcoin, as long as you have all of your investments covered in a good old-fashioned way.

“It does not form part of our investment strategy. But you cannot ignore bitcoin because of the blockchain technology and what it offers: providing an independent digital ledger that is secure for transactions. The growth of the cryptocurrency and the fact there are more outlets accepting it means there is mileage. What's worrying is how much speculation drives up the price."

Guy Stephens, investment director at wealth manager Rowan Dartington, added: “Advisers should alert [clients] to the dangers and suggest an [exchange traded fund] on an execution-only basis. But it is pure speculation as to the value, which cannot be measured by any intrinsic value calculation.”

The rise in the value of cryptocurrency has reached such a level that the Treasury has now confirmed it wants to regulate the market. It is negotiating amendments to the 4th Anti-Money Laundering [EU] Directive that will bring virtual currency exchange platforms and custodian wallet providers into anti-money laundering and counter-terrorist financing regulation.