Cryptocurrency: A bite of the Bitcoin
The discussion around cryptocurrency has come up quite often for me in the last year or so. Most of it is out of curiosity from friends and clients, rather than a desire to partake in the buying and selling of cryptocurrency.
Let us firstly think about what these currencies are intended to be – a universally accepted credit. Based on this as consumers, it seems like a great idea.
As a child, we used to regularly hop the channel to France for our holidays and my Father, who worked in a bank would be watching the exchange desk like a hawk for 6 months prior deciding when to purchase his Francs. He’d be beside himself on the odd occasion he’d get over 10 Francs to the Pound. Even as a child, I would be given my pocket money in French currency for a couple of weeks and given the calculation to work out how much something would of cost in the UK.
A good exchange rate might mean our Bikes be upgraded in the wonderland of sports supermarché Decathlon – then only available in France but now found near the airport in Sydney and across Australia.
A single stable currency works well for consumers and business trading overseas, the Euro being successful across Europe, once the initial uncertainty over it’s value settled (I remember the price of a pint of Guinness in Dublin nearly doubling pre and post change.)
However, the problem with any currency is that as well as owning it, you need to find someone willing to receive it. So, an electronic currency is ‘easy’ enough to create but needs mass participation and adoption to become usable and accepted. It cannot be easily forged, stolen, or creatable – as such there is a nearly finite supply, which creates significant volatility compared to domestic currency, which can be created (and taken away) by governments as monetary policy dictates. There is no government to bitcoin, or others, to control, thus it’s value can be moved rapidly by headlines or sentiment.
Therefore, we see such fast movements in Bitcoin. I use Bitcoin as a bit of a catch all for Crypto in the same way my parents called every computer game ‘Space Invaders.’ It has been one of the longest running and most successful cryptocurrency launches but there are hundreds of alternative currencies being created all the time. If there are two people in the world willing to pay in and be paid by a means, it’s a currency. Hey, even cheese is still a currency in parts of Italy.
I took a picture of the above sign in Sydney in late March and commented on it’s lack of warnings. At the time, Bitcoin was flying. Tesla had bought a significant amount of the coin, which acted as a sign to many that universal acceptance of the currency into the mainstream.
Fast forward to now and Tesla have back peddled, stating they will no longer accept payment in Bitcoin. Bitcoin has fallen over 30% since I took that photo, continuing a pattern of rises and falls since its creation.
Does crypto belong in a well-diversified lifetime portfolio? No.
This is the same view I hold of any currency other than your own countries, within your portfolio. It doesn’t fit the two fundamentals of a long term investment, in that it should provide you with potential for growth through two means – it’s value and it’s income. With any currency, you are only betting on its value to rise, it doesn’t provide you with income via a dividend, rental income or interest payments.
Do I think cryptocurrencies have a future? Yes.
I am sure that at some point there will be a dominant player in the market of crypto but – and this is a big but – it may not even have been invented yet. Bitcoin is certainly the frontrunner for the crown, but my feeling is that a big player like Google, Microsoft etc. could come to town and clean up. Facebook hinted again they would be coming to town. They have size, profit and most importantly, consumer trust (to an extent) on their side.
For now, it is a gamble. Adverts like the one for Luno have been gradually pulled by advertising watchdogs and hopefully we will see a greater regulation of the market.
However, signs this week from the Government are that they’re not going to stand in the way of similar trading companies from abroad coming to sell into Australia. Senator Jane Hume saying this week “We have to back Australians to be sensible enough to judge for themselves, where and whether to put their hard earned money into high risk assets.”
So, whilst Financial Advice firms are subjected to higher and higher education and compliance standards (and costs,) our clients will continue to see unregulated advice via billboards and social media.
Continue to shut out the noise!
Have a lovely weekend and for those of you in Melbourne, I hope this latest set back passes smoothly,
