Who are the cryptocurrency investors?

This article is part of
Guide to Cryptocurrencies

Russ Mould, investment director at AJ Bell

Russ Mould, investment director at AJ Bell

Russ Mould, investment director at AJ Bell says: "It may be no coincidence that Bitcoin and cryptocurrencies found fresh support just as equities wobbled, bond markets rallied and central banks did a policy U-turn, leaving interest rates as they are or even cutting them, rather than raising them. 

"Bitcoin’s resurgence may reflect fears over the global economy and the prospect of lower rates for longer or even more quantitative easing if things get really difficult, as central banks lose control, although gold’s failure to perform this year does not fit with such a narrative.”

According to Mr Peters factors driving the popularity of cryptocurrencies, are:

First of all; cryptocurrencies are decentralised, meaning that they are not tied to central authorities or governments the way fiat currencies are. Their release is conducted solely as a result of mining and the whole system works exclusively on mutual trust of users.

Second; is the underlying blockchain technology they use. This digital ledger-style technology stores all the transactions that have ever been conducted. Every new block generated on this ledger must be verified by the ledgers of each user on the market, making it almost impossible to forge transaction histories.

A third reason is security. He says: “While hacks of cryptocurrencies aren’t unusual, their decentralised nature means that, unlike traditional banks, there isn’t one central point of weakness that can be exploited.”

But not everyone is convinced that it is a safe way to invest.

Mr Mould says cryptocurrencies: 

  • are still not universally accepted. Clients cannot buy their weekly groceries or pay their taxes with them.
  • are subject to fraud (not that this necessarily distinguishes them from other forms or remote payment or investment).
  • have no intrinsic value (though the same can be said for gold or paper money) and they do not generate a yield or cash (which some gold miners do, for example).

He adds: "Under such circumstances many clients and advisers may shy away or seek alternative portfolio diversifiers. But Bitcoin’s current resurgence is eye-catching and it may be that we are still in the early days of cryptocurrencies and blockchain-enabled payment systems."

As an investment, Adrian Lowcock, head of personal investing at Willis Owen, says cryptocurrency investment is a very high risk and very speculative type of investment.

He adds: “At a basic level I think this is more about the technology than the currency itself. As an investment we have seen how bitcoin has risen and fallen again and again. 

“A lot of these cryptocurrencies and bitcoin included, have fundamental flaws in their design, which do not make them suitable as a currency.”

Philip Milton, financial planner at Philip J Milton says: “I am very much in the skeptical camp. You cannot have this thing as a currency, because it does not have a stable value and it does not have any substance behind it.”