Alt Investments

Crypto-Currencies? Not For Us, Says Queen's Bank

Josh O'Neill, Assistant Editor, 17 October 2017

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Blockchain, however, presents many opportunities, the bank says.

For one of the world's oldest private banks, bitcoin and other crypto-currencies have no place in investment strategy. 

“While we see long-term benefits from the technology involved, there are too many unknowns for us to include virtual currencies in our investment strategy,” said Monique Wong, multi-asset investment manager at Coutts, the UK-based private bank. 

Her comments came hot on the heels of a surge in bitcoin's price, which late last week reached an all-time high of $5,856 after markets had opened at $5,439, according to CoinDesk. 

But Coutts – famed for being the UK monarch's bank and founded in 1692 – bases its investment decisions on “fundamental data”, and bitcoin “does not possess the metrics we would look for to gauge its underlying value,” Wong said.

Although, admittedly, the “reach of bitcoin is spreading... you shouldn't mistake these ephemeral characteristics for a strong investment story,” she added. “As far as we can see, these returns are based on pure speculation about their future potential, with no hard data to back it up.”

Lacking regulatory oversight also makes it difficult for Coutts to buy into bitcoin and other crypto-currencies. 

“Crypto-currencies are unregulated as securities in the EU, and therefore the UK, and regulated investors like Coutts aren’t permitted to invest in non-regulated assets,” Wong said. “In addition there is no protection for individual investors against scams, hacks and theft.”

Bitcoin has drawn intensified scrutiny from authorities globally this year as its regular price swings have spurred increased investment and ramped up liquidity. 

Last month, Chinese regulators ordered local bitcoin exchanges to shutter and clamped down on initial coin offerings (ICOs), declaring the fundraisers illegal. Some analysts have speculated that China may eventually move to regulate bitcoin and crypto-currencies, while others have suggested that the ban is permanent and part of broader efforts to curb financial risk. 

Blockchain - the better investment

While Coutts may not be bullish on bitcoin, the bank does see potential in its underlying technology, according to Wong. 

“In our view, the development of blockchain technology is a far more interesting area to watch than the current gold rush on crypto-currencies,” Wong said. “This new technology has the potential to disrupt any field where there’s the need for secure, transferable records. For us, this is where the real story of bitcoin begins.”

Described as a “key area of innovation”, “the technology they [crypto-currencies] are built on also provides clues as to the importance of their development and where the investment opportunities might be in the future,” Wong said. 

A blockchain is a virtual distributed ledger of transactions shared peer-to-peer that can record ownership across a public network of computers rendered tamper-proof by advanced cryptography. 

“The cryptography is what keeps the blockchain secure,” Wong said. “The block can’t be amended without both the public and the private key. And because the blockchain is held across a network of computers, rather than centrally, no single person can change it without everyone knowing.”

She added: “These elements combine into a powerful combination – an independent virtual unit of exchange where transactions can be securely verified.”

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