Beware If You Are A Speculator: What Wealth Managers Are Telling Their Clients On Bitcoin

Investing in Bitcoin carries too great a risk, warn wealth managers

Investing in Bitcoin carries too great a risk, warn wealth managers

Wealth managers are warning clients the risks are too great to invest in Bitcoin at the current time as demand grows for the cryptocurrency, but they remain interested in the potential of the underlying blockchain technology.

Bitcoin became the fastest growing asset in the world in 2017, with its price rising by around 1,500% over the course of the year to reach highs of nearly $20,000.

But prices are notoriously volatile and the cryptocurrency has had a bumpy start to the new year and now trades at $14,129 at the time of writing.

Bitcoin breakthrough: Digital money expected to expand its reach in 2018

Comparisons have already been drawn with past market bubbles, such as Tulip Mania in the 17th Century and the dotcom bubble that finally burst in 2000, forcing a response from regulators.

The Financial Conduct Authority branded Bitcoin an "extremely high-risk, speculative product", while the Treasury threatened new regulation on the sector, which is expected this year.

Despite these warnings, Bitcoin and other cryptocurrencies are continuing to attract the interest of would-be investors, prompting wealth managers to urge caution when approaching this area.

Carney warns of global clampdown on Bitcoin

Michel Perera, CIO at Canaccord Genuity Wealth Management, said the firm would not be "investing in anything related to Bitcoin or other cryptocurrencies", as it "fails basic requirements for an investment" with regards to valuation methodology, custody and safe-keeping, easy transferability and liquidity.

"Due to these - and other - reasons we are suggesting to clients that the risk is too great for them to invest in Bitcoin at the moment," he added.

However, Perera said the firm "does not rule out that the underlying technology behind Bitcoin and other cryptocurrencies could be valuable one day, and it might well become a standard method to exchange for goods

and services".

Meanwhile, head of collectives research at Rathbones Mona Shah described Bitcoin as an "unregulated and very nascent technology", with valuation and volatility issues that make it "difficult to assess whether [its] return is commensurate with risk".

However, she added. "We continue to monitor potential areas of investment opportunity driven by technological disruption… [including] fintech."

Head of research at EQ Investors Sophie Kennedy is more optimistic, describing Bitcoin as "fascinating technology with great potential", adding that its development "shouldn't be ignored".

"But for the vast majority of our clients who trust us with their personal wealth, it would be irresponsible for us to dabble in a market as nascent as this that could halve in value overnight," she said.

"Our advice is: be aware if you are a speculator - enjoy any gains as long as you are also prepared for potential losses."

Hargreaves Lansdown offers bitcoin exposure through ETN

Darius McDermott, managing director at Chelsea Financial Services, said he also remains sceptical on Bitcoin due to valuation and volatility concerns.

"If you look at charts of previous bubbles - in particular the Tulip bubble - Bitcoin is three-quarters of the way there," he added. 

"It could well go a lot higher but I just feel that, at some point, it could easily fall to 50p. Cryptocurrencies may be the future, but not in their current guise."

Bitcoin price (US$)

Source: Coindesk

RECENT NEWS

What A Rising VIX Means For Pension Funds

Wall Street’s latest selloff has moved beyond a technology-sector wobble and become a broad market event. The Nasdaq C... Read more

Behaviour Cannot Fix A Portfolio Construction Flaw

A Retiree Shouldn't Be Asked to Behave Their Way Out of a Portfolio Construction Problem Why behavioural coaching shoul... Read more

Behavioural & Retirement Portfolio Resilience

Behavioural Survivability and Retirement Portfolio Resilience Why the lived experience of market recovery matters as mu... Read more

Australia's Rate Rise Bites: Highest In 15 Years

The Reserve Bank of Australia has lifted interest rates to their highest level since 2011, and its governor admits the w... Read more

October Retirement Portfolio Resilience Assessment

Markets stabl Read more

Gyrostat September Retirement Portfolio Resilience Assessment

September Retirement Portfolio Resilience Assessment Markets have fallen. The price of risk has risen. ... Read more