Do they have a place in portfolios?
Like any currency exposure, if and when cryptocurrencies values start to behave and are more widely used like traditional currencies, they may well have a purpose for some as part of a diversified portfolio.
It would take a brave person to bet against the increased use of blockchain technology over their lifetime. However, on the cryptocurrency side, while we watch markets develop with interest, at the current point in the market we view Bitcoin and other cryptocurrencies as speculation rather than a long-term investment.
These views are seemingly mirrored by the FCA, deeming cryptocurrencies to be ill-suited to retail consumers, citing many of the issues highlighted above as a reason to ban the sale, marketing and distribution of any derivative referencing cryptoassets in the UK.
Our reason to include an alternative ‘asset’ like this within a well-diversified portfolio would normally be to achieve either inflation protection, negative correlation or reduced downside risk. Unfortunately, Bitcoin has demonstrated none of these attributes to date. This, along with the unregulated nature of the asset, means we will remain on the sideline for now when considering how to produce well-diversified returns for our clients.