In Focus: Passive Investing  

Crypto is an asset class, but not as we know it

Simoney Kyriakou

Simoney Kyriakou

Cryptocurrencies are coming out of the tech junkies’ basements and into regular investors’ wallets. 

What seemed to be a fad for a few digitally savvy speculators 10 years ago has become the world’s fastest-growing asset class, with its paladin, bitcoin, leading the pack. 

According to foreign exchange analyst Forex Suggest, bitcoin, ethereum and dai will be in the top 10 of assets by market capitalisation in 2024, with bitcoin’s growth outstripping that of Microsoft, Amazon and Toyota. It is boldly going where standard investments have never gone before.

Such scale means traditionally minded investors can no longer think of cryptocurrency as a speculation or a gamble: it is an asset class, Jim, but just not as we know it. 

And if Elon Musk, one of the world’s richest entrepreneurs and innovators, can play around with bitcoin and change the direction of its price, seemingly on a whim, then ordinary investors, too, should be able to class it as part of their overall portfolio.

Except they can’t, at least, not in the advised space. While more than 2m Brits own small pieces of crypto in various online wallets, this is not coming with any regulated financial advice.

Quite rightly too: financial advisers, being regulated by the Financial Conduct Authority, do not want to touch unregulated investments or speculative punts, at the risk of being caught out when things go wrong.

Although the FCA and other agencies globally have issued rules and guidelines around the edges of promotions and products relating to crypto, few have gone as far as to allow crypto into the regulated, intermediated financial space as a qualifying retail asset.

Cats, babies and neophobes

Of course, the Dutch and the Canadians got in early, with their regulators allowing crypto-based exchange-traded funds for domestic clients wanting to get their hands on a regulated product that can give them exposure to this emergent asset class without the full risks of direct exposure. 

But the Securities and Exchange Commission in the US, along with the FCA and other regulators, have been far more cautious, concerned about the unknown risks of a currency that has no physical presence, cannot be traced easily and which may have helped facilitate money laundering for a crack den somewhere else around the world. 

While the SEC recently gave the green light to an unleveraged ETF, it drew the line a few days later to a proposal for a leveraged ETF, which would have added the risk of gearing or borrowing to the risks of the underlying basket of synthetic digital currencies.

That said, some of the fears around crypto and its murky connections to the darkest corners of the dark web may be just that: fears. Fears of the unknown, or neophobia – the fear of new things – is common among humans and other animals. It's a primordial directive.