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

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.

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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.

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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."

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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."

_{Source: Coindesk}