Today we are discussing an article published in this week’s edition of Financial Adviser written by Saloni Sardana a feature writer for the publication and its entitled “Cryptocurrency lessons of 2018”.
This article briefly covers the performance of cryptocurrencies particularly in 2018 and also provides the views of the UK Regulator and a number of financial advisers and their approach to this new investment phenomenon.
It points out that in 2018 Bitcoin closed at $3,769 or £2,920 very far removed from its $20,000 high in December 2017 and no-where near the speculation at the time which would see bitcoin rise to at least $50,000 in 2018 and some even forecast $100,000. Mmmm does this remind you of similar cases – ah yes gold at $10,000 an oz and silver at $600 as we recall one or two people predict.
In the Premium Section of the Inner Sanctum we actually read the article in full and discuss its implications as its quite a lengthy one.
In a nutshell, the article paves the way for blockchain investment products to fall within the legal financial framework and will formally enable advisers to include it in an investment portfolio.
However the FCA – the Financial Conduct Authority – the UK Regulator – does not include bitcoin or Litecoin, or at least not yet, within that parameter, as it defines them as tokens which are not issued or backed by any central authority.
That said, some financial advisers are clearly prepared to recommend these products, albeit as a small percentage of an overall portfolio, but accepting the fact that such advice may render their firm liable to compensation claims should the investment go awry. Percentages of 5% – 10% maximum were muted as a percentage of an overall portfolio. A Similar percentage to that some say gold and or silver should be recommended.
Our take on this, or at least our current take on this is, that cryptocurrencies should not be seen as an investment but as a speculative medium of exchange – in other words a currency – where its value can rise and fall but with perhaps larger than normal gyrations. In the past whenever we made financial recommendations there was always an element of cash holdings included, and to the more enlightened amongst us a small level of gold holdings recommended (though the latter was rarely taken up).
How the Regulators deal with this is anyone’s guess, but deal with it they shall, but what hasn’t gone unnoticed to us is that, any general acceptance of crypto’s within an overall investment portfolio is likely to crowd out, to some extent, any provision made for gold and silver.
So, whilst we can see the speculative attraction of bitcoin and other cryptos we can also envisage a slight deviation from gold and silver investments to compensate. This should not be the case, as gold and silver should merely be portrayed as a ‘currency hedge’ and used as such – but in investors minds and sometimes advisers minds, they will want to stick to the tried and tested formula of equities, treasuries, bonds, property and cash.
Formal regulated acceptance may indeed not be that far away as HM Revenue and Customs have already classed bitcoin and cryptocurrency gains to fall within Capital gains tax entitlements. HMRC has summarised the following scenarios as ones in which it expects a cryptocurrency tax liability could be triggered:
- Selling crypto assets for money
- Exchanging crypto assets for a different type of crypto asset
- Using crypto assets to pay for goods or services
- Giving away crypto assets.
From this we can clearly see that paths are being created to allow for the formal recognition, regulation and taxation of crypto assets and eventually currencies – the question is though will the current players suffice or will the Regulators insist on a State or Country created cryptocurrency and here’s one for the future, a Global World crypto currency.