Over many years of working as a financial writer, the one lesson I’ve learned is never to tout any investment as the best thing since sliced bread. It will only come back to bite you on the bum.
I wonder of the same applies in reverse, for example to those of us who from time to time warn about the dangers of investing in cryptocurrencies – and then watch from the sidelines as they continue to rise exponentially in value, albeit with occasional reversals.
The question is worth asking, if only because in the past six weeks or so the value of a single Bitcoin has plummeted from a high of more than £92,000 to “just” £69,000 at the time of writing this column.
Four years ago, the last time I wrote on the subject, my nephew Alex – a keen crypto investor – came to stay with us and Bitcoin stood at £32,000. Despite all my warnings of the folly of his “addiction” (in fairness, he was checking his crypto trading app 20 times a day), he has done rather well with his money.
In 2021, it was estimated that just 4% of UK investors had any exposure to cryptoassets. Today, that figure is 12% and rising
The signs are that his addiction is growing on bigger sections of the UK investment public. Back in 2021, it was estimated that just 4% of UK investors had any exposure to cryptoassets. Today, according to the Treasury, that figure is 12% and rising.
These figures were issued in April this year by chancellor Rachel Reeves as she announced the government would be “creating a UK financial services regulatory regime for cryptoassets, including stablecoin (cryptos pegged to other assets, like the US dollar).
“Crypto firms with UK customers will also have to meet clear standards on transparency, consumer protection and operational resilience — just like firms in traditional finance,” Reeves also said, adding grandiosely: “Britain is open for business — but closed to fraud, abuse and instability.”
By a “regulatory regime”, what Reeves meant was to permit investment in cryptos in exactly the same way as other assets and for the FCA to police them in exactly the same way as it does with other investments. The result has been that vehicles open for UK investors to invest in cryptoassets are expanding significantly.
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Since the start of October, the FCA has lifted its ban on retail investors accessing crypto ETNs, allowing them to be placed in both stocks and shares Isas as well as pension accounts. From April next year, crypto ETNs will be reclassified as qualifying investments within Innovative Finance ISAs (IFISAs).
The risk of unfettered investment in cryptos can be seen by what happened earlier this month, as US-traded spot Bitcoin ETFs haemorrhaged $2.57bn (almost £2bn) in net outflows in the weeks two weeks to mid-November, the funds’ worst monthly drawdown since their launch.
BlackRock’ Bitcoin ETF alone saw a net outflow of $1.26bn (£920m) in the same month, with almost half of that withdrawn in a single day (18 November).
Are these just short-term institutional profit-takers? Or are we talking about panicked investors causing a more serious long-term correction?
Crypto is not linked to any productive capacity, does not generate income, is not backed by any fiscal regime or tax system
Mugs like me have long warned that crypto has no genuine economic value. It is not linked to any productive capacity, does not generate income, is not backed by any fiscal regime or tax system.
As the Guardian wrote recently: “What props it up is not cashflow but expectation: the hope that someone else will validate today’s valuation tomorrow.”
But what do I know? After all, it is Rachel Reeves who has basically decided to expand cryptoasset availability to all and sundry in the UK. The same Reeves who was touted as having spent a decade as a Bank of England economist prior to Labour’s election victory in June 2024 – before it became known she’d only spent six years there, going on to become an expense account grifter at Halifax Bank of Scotland.
We are being told to rely on the ability of the FCA, with its stellar record in preventing large-sale fraud and mis-selling over many years, to police crypto trading to the general public. What could possibly go wrong?
Nic Cicutti can be contacted via nic@inspiredmoney.co.uk
