Technology
After A Tumultuous Year, What Next For Bitcoin?

Wealth management firms set out their opinions about a crypto-currency phenomenon that has prompted talk of "manias" and "bubbles".
It is entirely possible that by the time this article goes to press, the comments, drawn from wealth and hedge fund managers before Christmas, will be turned to dust if Bitcoin collapses, as some have predicted (such as Saxo Bank). But given that last year’s staggering rise in the price of Bitcoin from below $1,000 in late December 2016 to over $18,000 last year has happened, with some changes since, it seems remiss not at least to wonder what managers thought would be the outlook.
Rothschild Private Wealth
“We still do not recommend any cryptocurrency as an investment.
Prices could rise a lot further, in which case we’ll look too
cautious. But they might collapse…The number of potential
bitcoins is limited, but the number of cryptocurrencies clearly
isn’t. They carry no interest – not that bank deposits do at the
moment, but they will again at some stage – and unlike gold, they
are not attractively shiny or immune to social collapse and/or
nuclear holocaust. The only attraction that we can see is that
prices have been going up – a class bubble-like reason for
getting involved.
"But whatever happen next to prices, the technology may transform
finance – and here the investment case is stronger, if more
difficult to act upon."
Agecroft Partners, a firm working in the hedge fund
space
“The cryptocurrency market place is in its infancy stage and will
go through tremendous innovation and evolution over the next
decade. We expect the industry to experience exponential growth
and at some point cryptocurrencies will be commonly used by
consumers.
“It is estimated that there are currently over a thousand
cryptocurrencies along with numerous service providers to the
industry. Those individuals who can effectively evaluate the
landscape, understand how the market place is evolving and
determine who will be the future leaders in the industry will be
highly successful.
“It is important to differentiate between the future growth of
the industry and the current valuation of its largest player:
Bitcoin. We believe Bitcoin’s current price has been bid up by
hype and speculation to potentially create the largest bubble in
the financial market history. Unlike a bond that pays interest or
an equity that generates earnings, the only thing supporting the
value of bitcoin is supply and demand. Many investors are jumping
in because of the meteoric rise in price which causes further
price increases. Once the price peaks and begins to fall it might
not be impossible to sell until the market bottoms, which could
be cents on the dollar or less.
“Other dangers to Bitcoin include increased competition from
other cryptocurrencies, government regulation, and the potential
loss of investor confidence from a major cyber-attack.”
Mark Ward, head of trading at Sanlam UK
“What a Bitcoin (and its rivals) is, can be thought of just as
virtual money, used to buy and sell items, as you would in a shop
with a five pound note – they are simply a means of exchange – it
allows barter to occur online, in a virtually fraud-proof way.
Whereas a central bank stands behind and stabilises traditional
currencies (in the past one could exchange notes for gold should
you ask the Bank of England, and UK bank notes still contain a
“promise to pay the bearer” from the UK government itself), there
is no bank, corporation or government acting as a backbone to
Bitcoin. This is why the value of cryptocurrencies are so
volatile – its value derives from the confidence in the market
that tomorrow, the Bitcoin will not be worthless.
“Bitcoin is not truly a currency, at least not yet, and is best
thought of perhaps as a commodity. The Dutch Tulip Mania in the
1600’s saw the price of a special type of tulip bulb rise to more
than the cost of a house with an acre of land in the Netherlands,
yet the intrinsic value and usefulness remained essentially
nothing. But, as with cryptocurrencies, if people decide
something has value, then it has value, and only time will tell
if Bitcoin is another tulip-mania in the digital world, or will
deliver on its promise to displace central banks and hard cash as
the primary means of exchange in the future.
“One question that we often get asked at Sanlam is – “I don’t
know how to mine Bitcoin, I don’t actually want to use it as
currency, but I want exposure to it”. The easiest way to gain
exposure to Bitcoin would be via an Exchange Traded Fund (ETF).
That said we do not recommend Bitcoin as part of an investment
strategy, as it has many characteristics of a bubble and
something that we view as purely speculative.
“As for the future of crypto-currency, it largely comes down to
three factors: whether or not Central Banks and governments
release their own versions and make them the only legal tender,
on indeed officially endorse a crypto-currency like Bitcoin,
whether or not transaction processing speeds up from the current
average of four days, and if the price volatility can be
stabilised.
“Whether Bitcoin falls to near-zero like the aforementioned
tulip, continues to rise like diamonds have over the past
century, or simply holds steady once the market finds the level
it can tolerate, is anyone’s guess at the moment, but it is
certainly one to watch as it becomes better understood by the
mainstream.”