Premier Wealth Management based in Birmingham, UK

Cryptocurrency crash, bang or boom?

Cryptocurrency has been at the forefront of financial news a lot in recent years. It is exciting in so many ways and many view it as a shift from the traditional seats of power as it creates a unified language (like Spanish versus English, Euros versus GBP) which allows you to trade with anyone, anywhere, in any time zone without bank charges or bank processing. It is essentially electronic money without a direct asset foundation.  

 Crypto is receiving hype about it being the ‘next currency’, but which currency will it most closely reflect?

Currency values do fluctuate regularly, but often not very dramatically. As cryptocurrency becomes more prevalent however, this could change.

 Recently, and quite controversially, El Salvador adopted the Bitcoin as legal tender. Ahead of this move the value of Bitcoin increased but fell by 17% the next day.  National pride also plays a measurable factor in the value of a currency, something that cryptocurrency is unlikely to be affected by. Even after their adoption of the Euro, many Spaniards still yearn for the peseta not only for nostalgia but also for the sense of control in influencing the value of their money. 

Unlike national currencies cryptocurrencies value is unregulated and is based upon the whims of people who decide how much it’s worth, whereas the GBP value is regulated as a percentage of GDP.

 This doesn’t sound too distressing until you are planning to make a large purchase, like a car, for £22,000 but the day you transfer the money the car now costs £30,000.  Take for example, Laszlo Hanyecz who over a decade ago bought two pizzas using 10,000 bitcoins. At the time this roughly translated into $41. Today, those same 10,000 bitcoin would be worth $380 million. (1)

Because cryptocurrency, founded in 2009, is such a new concept, it is not tried and tested and therefore we don’t believe we should directly invest for our clients in any specific cryptocurrency – our same philosophy when addressing foreign exchange trading or penny stocks. Most of our clients don’t need these assets in their portfolio to build wealth. If some of our partners like Russell or Standard Life believe that they need to use some form of crypto, then let’s leave it to the professionals to make sure it matches risks and returns.

The volatility in direct investments into cryptocurrency makes it too uncomfortable for my focus for the majority of our clients’ portfolio.

B.D. has personally invested in cryptocurrency as an experiment as he wanted to experience first-hand how it works.  “I invested £600 six months ago, and with the volatility I have not made back even £450 yet.” In order to ‘purchase’ Bitcoin and Ethereum, B.D. had to take some online tests to learn about the storage of data and speeding up exchanges and research the business case for each type to decide what to buy.  Even with the detailed business plan, the concept is still complicated to get your head around, especially when you’re not seeing the expected return.

Despite the image that the Big Boys (i.e., Facebook, Tesla, and governments) will own the currency, at Temple Row we still believe cryptocurrency could run the world at some point, we just don’t know in what decade that will be. Here is a link to the pitfalls of when a pizza costs more than a family car over time.

***We are here to bring you information, this is not a suggestion for investment.***


(1)  https://www.marketwatch.com/story/bitcoin-pizza-day-laszlo-hanyecz-spent-3-8-billion-on-pizzas-in-the-summer-of-2010-using-the-novel-crypto-11621714395

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