One of my favourite folktales as a child was The Emperor’s New Clothes by Hans Christian Andersen. The story about a vain emperor who gets exposed before his subjects is often used as a metaphor for similarly missing elements in life.
One current example of The Emperor’s New Clothes is Bitcoin. What can only be described as a speculative bubble is now, sadly, pervasive within the world of financial planning, due to the unwise decision of a handful of institutions to get involved.
I believe Bitcoin is a scam. It has no tangible value and its price is being driven higher by speculators, including those able to manipulate market pricing for their own gain.
The ‘mining’ of Bitcoin consumes extraordinary amounts of energy, with one (now slightly dated, from July 2019) estimate suggesting it is using 0.21 per cent of the world’s electricity supply. At a time when our focus is shifting towards ESG, to get involved in a highly polluting digital currency is irresponsible at best.
Have IFAs been a barrier to ESG?
The current frenzy surrounding Bitcoin is making the world less safe. Whether inadvertently or intentionally, those buying or selling are funding financial crime and terrorism. The veil of anonymity offered by a decentralised crypto asset is incredibly attractive to organised crime syndicates and terrorists.
Without wishing to single out Ruffer, I wonder where it bought its £550m of Bitcoin from. Where it’s not possible to identify the seller of Bitcoin, any institutional investor speculating in this space risks the eventual ire of their regulator should it ever transpire they placed money in the pocket of criminals.
Buying Bitcoin can never sit comfortably with our commitments to client identification and anti-money laundering best practices.
Any client who asks their adviser about buying Bitcoin should be asked, in return, how they would feel about funding ISIS. Indeed, academics from Macquarie University identified Daesh as a user of Bitcoin, with strong evidence of links to a number of terror attacks in Europe and Indonesia.
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Leaving aside the environmental damage and abhorrent regulatory risks, Bitcoin is essentially worthless. Its enthusiasts claim scarcity supports its price, but have no idea who founder Satoshi Nakamoto is. That’s important because he or she apparently mined one million Bitcoin before disappearing in 2010.
There are plenty of other reasons for advisers to avoid going near Bitcoin. Its volatility rating is close to that of the 3:30pm at Chepstow. We have no reliable data to understand its correlation with mainstream investment assets. Assuming the price of Bitcoin continues to rise, institutional investors continue to pile in, and payment merchants like PayPal make it easier to use Bitcoin as a currency, clients will increasingly ask about adding it to their portfolios. Please say no.
Our role as advisers should be based on the suitability of recommendations and doing the right thing, instead of following the herd. I already dread thinking about the future Financial Services Compensation Scheme claims that will arise from those foolish enough to recommend or facilitate a Bitcoin investment.
Thankfully, for now, it would be challenging from a regulatory perspective to actually recommend Bitcoin or another crypto asset. But should that time come when the FCA pulls Bitcoin into its regulatory perimeter, please pledge with me now that you will do the sensible thing and steer well clear.
Martin Bamford is a non-advising chartered financial planner at Informed Choice
yes. But. Quite right. Don’t get clients involved in Bitcoin (or any crypto currency). It’s entirely not what financial planning or investment advice is about.
OTOH, why are there crypto currencies like Bitcoin? Answer, as an attempt to counter the utter failure of nationalised currencies. e.g. the value of GBP has declied by about 98% since 1945. That’s failure. Central bank failure. In spades. Doubled.
Even more worrying is CBDC – central bank digital currency. You think Bitcoin is bad. Just you wait until your Central Bank has the power to arbitrarily alter the value of your hard earned savings.
So give Bitcoin its due. It’s an honest attempt to counter the tsunami of bad money made by central banks, everywhere.
I don’t know of anyone who’d ever go anywhere near Bitcoin, least of all any regulated advice firm. But somebody must be taking the bait ~ who, I wonder?
No different to any fiat currency though a tad more volatile.
When in 2020 the Fed. creates some 37% of all dollars ever, ex-nhilio at a (key) stroke along with the BoE, ECB and BOJ doing their bit, Satoshi Nakamoto’s disciples look like part time amateurs.
I’m with De Gaul as far money is concerned.
Oh my god Martin your naivety astounds me (after I had read a little further);
“Any client who asks their adviser about buying Bitcoin should be asked, in return, how they would feel about funding ISIS. Indeed, academics from Macquarie University identified Daesh as a user of Bitcoin, with strong evidence of links to a number of terror attacks in Europe and Indonesia”
Ever read the words of Smedley D. Butler? What do you think your taxes and those of the western world are use for?
I’m no fan of bitcoin and i own none but I do believe the blockchain will be very useful.
What tangible value does any currency have, especially fiat currency created out of thin air by commercial banks when they create a loan?
Any currency only has the value which the users of that currency arbitrarily ascribe to it. It is the goods, services and other currencies that the currency can buy which are the measure of the value of that currency.
The arguments you make against Bitcoin could equally be levelled at all the other major currencies. How much terrorism do you think has been funded using the USD and GBP, and how much of the drugs trade is funded by those shiny plastic notes with our sovereign’s head imprinted upon them?
I find it quite disturbing that somebody who claims to be a financial planner should offer such strong opinions on a financial matter, when they obviously appear to be preaching from a position of ignorance. Does your opinion expressed here constitute financial advice and are you prepared to have it tested in a court of law or at least the court of the Financial Ombudsman?
I am quite sure that every day your firm recommends to its clients that they buy Sterling, the Euro and the Dollar. And yet every major fiat currency is being devalued on a daily basis by the printing of trillions of “new money supply” by the central banks and their commercial buddies. Do you tell your clients that when you recommend that they invest in these currencies which are guaranteed to depreciate?
In contrast to fiat currencies, Bitcoin is likely to become the perfect store of value for the world because it cannot be printed out of thin air and its supply is finite. It is beyond the manipulation of a corrupt financial system which taxes the population so underhandedly with its raging monetary inflation.
It has been designed as the perfect hard currency which will rank alongside gold and silver in the years to come as a store of value and protection against theft by the banks. Future financial planners will have to justify why they do not include it in clients’ portfolios, and ignorance and prejudice will not be a sufficient defence.
I recommend that you listen to Michael Saylor and other CEO’s as to why they have started moving their balance sheets into Bitcoin rather than the USD. There is a whole world of macroeconomics and education out there on YouTube which you won’t find between the covers of RO1 to RO6.