Worried investors turn to gold
In his testimony before Congress in 1912, American financier and investment banker J.P. Morgan...
Earlier this year, Bitcoin made the headlines as it hit a record high of almost $42,000. Roll on ten months and it’s back in headlines – this time with a record high of almost $67,000. It is now so big that if Bitcoin were a company, it would be the sixth largest in the world.
The cryptocurrency has also recently benefited from the announcement that the US has introduced the first Bitcoin-focused ETF. A landmark day for the cryptocurrency, the product quickly amassed more than $1bn in assets.
Cryptocurrencies, it seems, are poised to take over the world. But while there are many crypto fans around the globe, there are an equal number of skeptics. So, for those less willing to invest in the currencies themselves, are there other opportunities to consider?
“Cryptocurrencies and web 3.0 technology is the biggest political idea for 150 years.” — James Yardley, senior research analyst
Before we get into the nitty-gritty, let’s take a step back and remind ourselves what exactly a cryptocurrency is. A cryptocurrency is a digital currency that only exists electronically and is protected by cryptography. Individual coin records are stored on a database which is shared and synchronised across the world, known as a distributed ledger. A key feature of many crypto currencies is that there is no central authority making them impervious to government control.
Bitcoin was the original cryptocurrency and was created in direct response to the great financial crisis, as an alternative payment system that would operate free of central control and could not be debased as happens by governments with traditional fiat currencies (like US Dollars and Sterling).
You can use cryptocurrencies through a centralised exchange. The biggest in the world is Coinbase – a holding in GAM Star Disruptive Growth fund. Manager Mark Hawtin told us more about this exchange in his recent video.
These exchanges will allow you to exchange traditional fiat currency for cryptocurrency, or trade from one cryptocurrency to another. More experienced users increasingly trade their crypto on decentralised exchanges (DEXs) The largest decentralised exchange currently is Uniswap.
So, what about the underlying technology?
One alternative to investing in cryptocurrencies is investing in blockchain technology.
According to Vincent Vinatier, manager at AXA Investment Managers, the team is not particularly keen on the current crop of cryptocurrencies in general “[but] we’re a lot more positive on the blockchain technology itself, with a number of promising applications such as forex, even if, in many cases, standard databases will often be a lot more efficient in terms of speed, scalability, energy, etc,” he said.
Big tech – led by the likes of Facebook (now Meta) and Microsoft – are also looking to use the blockchain technology which has enabled the verifiable ownership of digital assets to create the Metaverse. There could be a huge battle in the future across technology and finance, as centralised middlemen platforms fight to maintain relevance versus decentralised alternatives.
The team at AXA also believes that “official” digital currencies will materialise over the next few years. These more stable alternatives will be backed by hard assets, guaranteed by central banking authorities and therefore totally different to Bitcoin.
While I could spend days reading about new and emerging tech, it’s not for everyone. You can still gain exposure to technology on the sector level to capture growth potential in the industry. AXA Framlington Global Technology is a clear option, but other examples include BlackRock European Dynamic with 22.5%** in the sector, Jupiter Asian Income 26.3%**, Liontrust UK Micro Cap 30.5%** and Marlborough UK Micro Cap Growth with 22.5%.**
Whether you are Team Crypto or Team Technology, make sure you’ve done your research before you invest your money.
*Source: Bitcoin price at 20 Oct 2021 according to Coindesk
**Source: FE fundinfo, 10 November 2021