Speaking to Express.co.uk, Chris Clothier, fund manager at London-based CG Asset Management, warned potential investors in Bitcoin that despite what proponents of the cryptocurrency may say, Bitcoin lacks a fundamental element for it to be used as a transactional currency of the future. While he acknowledged the possible strengths of the blockchain network, he stressed that the market will change and investors should be careful of where they place their money. Mr Clothier’s comments come as a mania of investing in Bitcoin along with various other cryptocurrencies have garnered huge traction, especially in young people. His comments come as the the UK’s Financial Conduct Authority banned Binanance from trading in the UK through fears of its unregulated activity.
Mr Clothier explained in depth how today’s Bitcoin market has fulfilled very little of what proponents of the cryptocurrency originally outlined it would.
He said: “The arguments were that it (Bitcoin) would become a major component in money remittances, typically that is migrant workers sending money from home.
“And that it would supersede traditional banking networks and come to dominate a large chunk of that.
“And then in turn that is what drove the valuation arguments which was to say that, let’s (hypothetically) say that global remittances are several hundred billion.”
He went on to explain: “Let’s say that Bitcoin captures 10 percent of that market…. And that money is held for three days while it is held as currency – the quantity theory of money would then suggest that Bitcoin would have an inherent value arising from that.”
But he stressed: “As we know that has not come to pass.”
He explained how despite what investors argue about Bitcoin’s values as a currency of the future “Bitcoin is not used in transactions” adding how “that is one of the three core definitions of money.”
Mr Clothier added how the definition of currency is: “It should be used in transactions, it should be a unit of account and third is that it should be used as a store of value.”
He concluded how it currently “only fulfills that third of the three” rendering it not a currency and undermining beliefs that it will overtake conventional fiat currency.
Mr Clothier’s argument went on to outline how investors must also be aware of the mania surrounding cryptocurrencies, explaining how there are many similarities between the current cyrptocurrency market and the ‘Dot com’ boom whereby investors piled money into businesses, many of which are no longer around today and have been overtaken by newer businesses that have followed.
He said: “If you go back over investing history, you see there are repeated episodes of human nature becoming excited and seduced by new investment phenomena… Very often they turn out to be fads or frauds or speculative bubbles and I think that every generation goes through that and it’s a painful bitter experience.
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“In previous mania it tended to be that people were investing in productive assets of which they were very excited, whether that was the railways or the internet.
“Whereas the current interest in crypto and NFT is resolutely in assets that are not productive and only slowly have value because society collectively agrees they do – that gives me greater pause for thought and concern.”
Recent months have seen Bitcoin banned in China as well as trading platform Binance have its licence to trade unregualted in the UK over major concerns of regulation.
Due to the ability to anonymously trade bitcoin with no financial trace, it is desirable for criminals as well as more sinister groups such as child traffickers who use the digital currency to hide activities from law-making authorities.
The UK’s Financial Conduct Authority website warns potential investors of the dangers of investing in cryptocurrencies.
They say: “Be wary of adverts online and on social media promising high returns on investments in crypto asset or crypto asset-related products.
“Most firms advertising and selling investments in crypto-assets are not authorised by the FCA. This means that if you invest in certain crypto assets you will not have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme if things go wrong.
“While we don’t regulate cryptoassets like Bitcoin or Ether, we do regulate certain crypto-asset derivatives (such as futures contracts, contracts for difference and options), as well as those cryptoassets we would consider ‘securities’ – find out more information.
Author: Tom Hussey
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