With geo-political tension around the world reaching a new high and fears of a global debt crisis on the rise again, is this the time to start thinking about diversifying portfolios into Bitcoin or other digital currencies?
Those who did so last year are reaping some great returns. Trading at around $1,000 at the start of 2017, Bitcoin hit $5,000 at the start of September. It’s a volatile commodity – it’s already been down below $4,000 since then and now trades around $4,570.
Bitcoin is not the easiest concept to understand and it divides opinions like almost no other investment. For some, it’s the very future of commerce as well as being a store of value beyond the reach of debt-hungry governments with currency printing presses running overtime.
Bitcoins from Amsterdam
For others, it’s the tulip mania/dotcom boom all over again. Tell such doubters ‘it’s different this time’ and they’ll respond that they’ve heard that one before.
We don’t have any Bitcoin Exchange Traded Funds (ETFs) yet – the US regulator, the Securities and Exchange Commission (SEC), has yet to approve any of the applications to launch one sitting in its in-tray.
One of these is the Winklevoss Bitcoin Trust proposed by the eponymous Facebook-trolling twins, who had their application turned down earlier this year.
Over here however you can buy a Bitcoin Exchange Traded Note (ETN) launched by Sweden’s XBT Provider which was acquired by asset management firm Global Advisors (Jersey) in June 2016.
An ETN is not a million miles away from an ETF - both aim to track an underlying asset – but it doesn’t actually hold the asset.
Hargreaves Lansdown offers this ETN on its platform – you can even put it in a Sipp although not an ISA – while Denmark’s Saxo Bank offers the same ETN to its own investors.
Could you? Yes. But should you?
So you can - but should you?
Not I, says Jason Hollands, managing director at wealth management firm Tilney Bestinvest.
‘Even investing in traditional currencies can be challenging as movements can be fast and furious,’ says Holland. ‘So I personally really wouldn’t want to try and take an investment view on a digital currency.’
Others with more skin in the Bitcoin game are more optimistic about its prospects.
‘It’s very difficult to make judgements about absolute price when an asset class starts to be accessible by much larger investor groups than before,’ says Global Advisors chairman Daniel Masters. ‘Right now we are seeing new, untapped pools of capital gaining access to the Bitcoin markets.’
And yes you need a stomach for the volatility says Sasha Ivanov of Bitcoin specialist Waves Platform. That, he says, is a function of a Bitcoin’s relatively small market capitalisation of $80 billion.
‘The more liquidity there is in the Bitcoin market, the more stable it will be,’ he says.
Ivanov adds that we can start talking about a bubble only when the market cap of crypto currencies exceeds the $1 trillion mark.