Like many, I harbour profound suspicion about the rise of Bitcoin, Ethereum and the hype surrounding blockchain.
A few years ago, I declared to Financial Times readers in my that I had finally dipped my toes into the market by buying a few units in an Ethereum fund. At which point the price of nearly all digital currencies tanked! This understandably led me to be a bit suspicious of the whole sector and in my darker moments I wondered whether the whole thing was just a criminal scam.
But if we are honest, we cynics might have got the tech heads wrong. Of course, digital currencies are incredibly volatile and blockchain is overhyped but the whole crypto space isn’t going away.
In recent weeks prices for key digital currencies has been on the rise, fuelled by a range of drivers, not least Paypal’s decision to accept bitcoins as a payment mechanism. There is also some evidence that digital currencies tend to do well when other ‘risk-on’ trades such as equities do well. There might even be some spillover form the recent rise in gold prices as safe haven investors look to diversify, though whether bitcoin qualifies as a safe haven is highly debatable.
Some institutional investors are taking more of an interest– I would point to the recent purchase of $425 million of Bitcoin by US outfit MicroStrategy as a hedge against possible rampant inflation.
Of course, the cynics would say that one can always find examples of hedge fund types dabbling in adventurous stuff, especially if there is positive momentum behind prices. But I also think we need to accept that our world view might not be shared by everyone else in the world. Go to many developing countries, with bankrupt governments or tyrants in charge, and interest in digital currencies is growing exponentially.
It is a point well made by the strategist and fund manager Dylan Grice in his regular Popular Delusions newsletter. He shows chart after chart of growing awareness and trading in digital currencies in countries as varied as Argentina and Iran.
Maybe, maybe just maybe we developed world cynics need to stop looking at every challenger investment idea through our own perspective? As Grice puts it:
We think that people who can’t see its value because they don’t personally feel the need for its benefits are making a mistake. We think that bitcoin has a future, and possibly even a very bright one. At worst, it will provide a decent store of value. More likely though, we think, is that it will go up over the next decade, and probably by quite a lot.
If we accept this analysis, and I’m inclined to agree (though with some trepidation), then how to build some exposure? Perhaps the simplest way is to simply open an account with something like a Ziglu, a great new app which has a dual purpose as both a bank account and wallet to hold digital currencies including Bitcoin and LiteCoin. It’s quite simple to operate, although that simplicity comes at a price as each transfer into a digital currency comes with a 1.25% charge.
But as an investor you still must make some active decisions. Do you want to prioritise just Bitcoin or other currencies? Or what about some exposure to new tokens or even blockchain? I have no idea how to manage these trade-offs and opportunities and would prefer to trust an experienced active manager who has the expertise I clearly lack.
One potential option is perhaps to invest in the Aquis listed KR1 vehicle. The blurb around this relatively new outfit says it
specialises in seed and early stage investments into projects that use decentralised technologies to create innovative products and services to disrupt current systems. KR1 is a leading digital asset investment company supporting early-stage decentralised and open-source blockchain and decentralised finance projects. Founded in 2016 and publicly traded in London, KR1 has built a notable reputation for generating significant returns by investing in many key projects that are designed to power the decentralised platforms and protocols that are emerging to form new internet infrastructures.
Portfolio investments include some wonderful names such as Moonbeam blockchain, and the Cosmos Network but the key investment is in Polkadot and its tokens, which have already made the business a handsome profit. The shares had been trading around the 6p mark but have recently bumped up to around 13p as Bitcoin prices have started rallying. I’ve started buying a few as a long term hedge against my cynicism. I have no idea whether this venture capital investor will double or treble in value or be worth nothing in a few years’ time but I’d wager that blockchain and decentralised finance isn’t going away.
David’s daily blog is available at www.adventurousinvestor.com.
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