Cryptocurrency  

How to advise on cryptocurrency and taxation

This article is part of
Guide to bitcoin and blockchain

"Read everything", Clem Chambers, chief executive of ADFVN advocates. "You can't know too much. Be extremely sceptical. It is like investing in shares, but at a hugely accelerated pace."

What's it for?

Mr Futter also advocates trying to understand what potential investors or users want the cryptocurrency for, and understand the use cases for each currency. Are they primarily transaction-based to help make online transactions easier? Are they for peer-to-peer lending networks to help projects get off the ground? Or are the currencies largely for speculative investments?

Lilian Chovin, investment strategist at Coutts, is concerned the majority of people getting into cryptocurrencies are not business owners looking for innovative ways to finance projects, but price-fixated speculators.

Moreover, she says the majority of Bitcoin Wallets hold less than a single Bitcoin - approximately 97 per cent of users own less than one entire cryptocoin. Only 2 per cent of cryptocurrency wallets hold 95 per cent of all the Bitcoins in existence. 

Even at today's depressed prices (7 February), the majority of the major and well-known cryptocurrencies are not cheap, nor are whole Bitcoins easy to buy, given that banks such as Lloyds are banning people from using credit cards to purchase digital currencies.

That said, a colleague on FTAdviser was in a corner shop where he overheard a male shopper turn to two others behind him in the queue. The couple had been talking about Bitcoin.

The lone shopper allegedly turned to the couple and said: "I can set you up with Bitcoin. I know where you can get heaps of them." I assume the man did not then proceed to undo his mac to show fake tokens lining the inside of his coat, a la Private Joe Walker. 

Wallets

This brings us onto the point of the virtual wallet. Because of the disparate nature of cryptocurrencies and the origins thereof, it can be hard for speculators, investors, users and companies to keep track of all their digital currencies. 

This is why many companies are starting to create crypto wallets to help their clients keep track of their Bitcoins and Ripple tokens.

Other firms are launching apps to help clients manage their money in one place. In January, international advisory firm deVere Group launched the deVere Crypto app.

It allows users to store, transfer and exchange five major cryptocurrencies, including Bitcoin and Ethereum.

Nigel Green, chief executive of the group, comments: "2017 saw the true dawn of the financial technology era. Fintech is already fundamentally changing the way we access, manage and use money - and the changes are coming quicker than ever before due to improving technologies and growing demand.