Buying into the Cryptocurrency fantasy

Everyone has been talking about it. Cryptocurrency. It has gone mad!  Just over a year ago, one Bitcoin was worth just over $10,000.  Since then, it has peaked at over $60,000, dropped to nearly $30,000, and, this week, reached a new peak of over $66,000.

You can easily be forgiven for feeling like you have missed out.

The driving force behind cryptocurrencies and why they have attracted more than 100 million investors is that they are widely believed to be the future of money.  There is the idea that it is more secure than conventional currency because of the underlying Blockchain technologies, yet there is also the risk of being hacked and your hard-earned money being stolen even while you sleep.

Then there is the price manipulation, of a kind that would trigger investigations by the US Securities and Exchange Commission and Department of Justice in any conventional investment instrument.

You need look no further than Elon Musk.  When he said he would accept cryptocurrency for purchases of Tesla electric cars the price of Bitcoin soared.  And, when he changed his mind, the price crashed in a similarly spectacular style.

It highlights just how speculative crypto investments can be. Bitcoin is an unregulated asset, conjured out of thin air by software developers which could treble in value tomorrow, or drop like a stone. In either instance, the cost to you as the investor is entirely your burden, as there is no Financial Services Compensation Scheme (FSCS) protection.

Bitcoin is but one of an ever-increasing range of cryptocurrencies on offer – some of which may be legitimate – others definitely not.  We can highly recommend the BBC Sounds podcast – The Missing Cryptoqueen – for a very salutary story of a cryptocurrency that definitely was not legitimate.

In fact, it is this ‘security’ and lack of centralised governance which causes an issue for the long-term prospects of its investors. Any crypto-style ventures are outside the realm of regulation and, intrinsically, cannot be allowed by governments to replace state-backed money.

Money inherently facilitates power and there is no way a government would bow to tech giants to facilitate transactions, so there is bound to be consistent opposition to these being viable currencies with purchasing power.

In our opinion, there is a greater probability of new State-backed cryptocurrencies in future years that are regulated, can be taxed – and which will control undesirable money laundering and crime.

The future definitely is digital currencies.  The problem simply is which ones.