Advisers are still steering clear of the Bitcoin hype, pledging they would never take part in the “speculative rollercoaster” of cryptocurrencies.
Despite its rising value and popularity — the price of the cryptocurrency is up 300 per cent over the past year — advisers have maintained that Bitcoin’s lack of intrinsic value, unproven track history and extreme volatility means it could never form part of a standard portfolio.
Paul Gibson, director at Granite Financial Planning, said: “The late great Jack Bogle of Vanguard said to avoid Bitcoin like the plague. I fully agree with his assessment.
“I am worried individual investors will get their fingers burned — Bitcoin is speculating and not investing and while it will hit the headlines every so often, I don’t anticipate it ever forming part of our portfolios.”
Ricky Chan, director at IFS Wealth and Pensions, agreed, urging retail clients to “ignore” cryptocurrencies and not believe in any “shortcuts” or “get rich schemes”.
Mr Chan added: “I don’t think Bitcoin will ever form part of a standard portfolio for retail clients. Its value is derived purely from speculation [...] and is heavily linked towards dodgy transactions.”
Meanwhile Alan Steel, of Alan Steel Asset Management, was planning to steer clear of any clients keen to dabble in cryptocurrencies.
“Any way you look at Bitcoin, you have to conclude at this stage it looks like a speculative rollercoaster,” he said. “Some early adopters have done very well but if clients wanted in, it is nought to do with me.”
Booming Bitcoin
The most popular of thousands of digital currencies, Bitcoin emerged in 2009 pledging lower transaction fees than standard online payment methods and greater transparency than traditional currencies.
It is bought and sold on currency exchanges, such as Coinbase and eToro, and stored in ‘digital wallets’.
The ways in which investors can use Bitcoin outside of simply buying and selling the cryptocurrency itself are still relatively limited, although transactions are growing and some online stores now accept Bitcoin as payment.
Bitcoin’s volatile value has soared since Autumn last year as investors opted for inflation-proofing assets, more established investment houses took a Bitcoin holding and a growing number of sites moved to accept Bitcoin as a form of payment.
For example, in November Paypal announced it would allow consumers not only to buy and sell the cryptoasset but to accept it as payment for goods.
Last week, Bitcoin hit a record high of $40,500 (£29,670) for one Bitcoin — nearly four times the $10,760 (£7,880) a Bitcoin was sold for in September 2020.
But it had dropped as low as $31,000 (£22,700) by the end of Monday as investors opted to take profits and the Financial Conduct Authority warned investors in cryptoassets must be prepared to “lose all their money”. The price of Bitcoin has since rallied to $34,500 (£25,300).
The City watchdog published a cautionary note on January 11 saying products such as Bitcoin “generally involved taking very high risks with investors' money” and urged consumers to ensure they understood what they were investing in and the risks associated.
Investors in cryptoassets are also unlikely to be able to access the Financial Ombudsman Service or Financial Services Compensation Scheme, irrespective of whether a firm has registration with the regulator.
The next gold?
Proponents of Bitcoin sometimes tout it as a ‘new asset’ which can fulfil the role of gold within a balanced portfolio — gold tends to perform well when geo-political uncertainty is high as it is a store of value.
Gold is viewed as a safe haven asset because there is a limited supply of it in the world and this particularly takes effect at times of high inflation. Like Bitcoin gold has no 'intrinsic value'.
But Adrian Lowcock, head of personal investing at Willis Owen, said he was unconvinced by such a comparison.
He said: “Gold has a much stronger history of protecting value, whereas Bitcoin has a short history of spikes in value. Gold is hard to value, but Bitcoin is even harder.”
Rosie Hooper, chartered financial planner at Quilter, agreed. She said: “There are many other alternative asset classes that can act as a diversifier which can be accessed much more easily and without the accompanying volatility.”
Access to Bitcoin was also an issue, according to the experts. From January 6 this year, the FCA banned the sale of crypto-derivatives to retail investors.
Mr Lowcock said this meant it was harder to invest in Bitcoin, even if advisers were willing to funnel their clients' cash into the cryptoasset.
He said: “If you can’t buy ETFs then it becomes a lot harder to access Bitcoin, other than perhaps through fund managers buying it.
“But it leaves you with a situation that advisers can only suggest a cryptoexchange and advisers are unlikely to have done the research and due diligence on this.”
In general, Mr Lowcock said advisers were right to err on the side of caution with Bitcoin, as their job was not to “jump on the next big thing” but to educate clients on the risk, volatility and limitations of such an investment.
imogen.tew@ft.com
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