JP Morgan have described cryptocurrency as the world’s first truly new asset in the last 100 years and given the total market cap of all cryptocurrencies combined is sat at around $1.4 trillion dollars at time of writing – it is still a very new frontier in terms of “investing”. There is a lot that people don’t know about crypto, so the question posed by many of our clients is what do we know and what do with think?
Broadly speaking, crypto assets should be split into two categories – tokens and currencies. Tokens are often a number on a screen, they offer little to no utility apart from a peer-to-peer payment service. Essentially, tokens are a way of converting “real money” into something else and sending it to another person, perhaps on the other side of the world.
The other categorisation would be the currencies which are backed by a project. These projects are often some form of “blockchain” which is essentially a secure way of keeping records. These records might be financial transactions, business contracts or legal documents. The advantage of a blockchain is that it is linear – this means it only moves forward and therefore the history is set in digital stone and verifiable by anyone and everyone at any moment. Blockchain technology is the future of the internet – but this does not necessarily mean cryptocurrency is also the future.
Project backed currencies are similar to early internet companies – they have identified a problem and they are trying to create an efficient solution. Instead of these projects paying supporters with pounds, dollars or yen – they distribute their own personal cryptocurrency.
Many of the projects work in a very libertarian, a “for the people – by the people” way of doing things. One of the more interesting things about Bitcoin is it has created more millionaires than anything else in recorded financial history. This level of empowerment is something increasingly fashionable in a world in which the top 1% are more heavily resented by the bottom 99% day by day.
This level of empowerment is also something that would be particularly threatening to authoritarian regimes. With that in mind, I wonder why China is cracking down on it? Could it be that if their people became financially independent, their government might lose some kind of hold on its people. Food for thought?
In terms of Acumen Financial Partnership Ltd and our Advisers – it is not something we will be dealing with in the short to medium term. Mainly due to its highly volatile nature, coupled with the overarching fact that it is an unregulated area of investment. However, both us and our investment partners will likely be keeping an eye on this space.