Wealth managers split on Bitcoin amid growing adoption and wild price swings

Following the extreme price surge seen at the end of 2017, when Bitcoin exceeded $20,000 for the first time, an overwhelming majority of UK wealth managers shunned cryptocurrency exposure as an appropriate investment for client portfolios. 

With the exception of continued bouts of wild volatility, much has changed in the time since, with growing institutional adoption and the price ballooning past $40,000.  

Ruffer Investment Management’s exposure to Bitcoin now totals around £550m, equivalent to around 2.7% of total AUM, the firm told Investment Week.

Meanwhile, Waverton Investment Management reversed its position on the cryptocurrency, with fund manager William Hanbury citing an improved regulatory environment in December as strengthening the case for Bitcoin. 

Regulators in the UK and across the world have put in place measures to investigate how best to regulate so-called “stable coins”, with HM Treasury recently outlining its regulatory priorities.

Partner at law firm Ashurst Bradley Rice, explained: “Stablecoins are again in the crosshairs, with regulators globally realising the threat if these go unregulated.

“The Treasury is at pains to state this is just the start regulation of cryptoassets – just enough to bring stablecoins into the regulatory perimeter, without wanting to hold back wider innovation.”

Regulation 

The Financial Conduct Authority has issued several warnings to consumers about the risks of investing in cryptocurrencies, which it said was “high risk” and “speculative”.  

Senior investment and markets analyst at Hargreaves Lansdown Susannah Streeter said: “The FCA clearly believes the crypto Wild West could be running out of control, and is warning that consumers risk losing all their money if they succumb to promises of fast and high returns.”

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Greater regulation of cryptoassets like Bitcoin could be an investment opportunity by legitimising the asset class, managing director for institutional crypto trading at MARKTS TradingScreen Alex Carteau explained.

“Further regulation is a huge opportunity for investors since Bitcoin is now only ‘used/owned’ by very few individuals/entities because it is fairly unknown and unregulated,” he said. “Once it becomes regulated, it will immediately fall into one of the ‘traditional’ asset classes already in place. 

“This means that asset managers, banks and brokers will be allowed to invest, trade, hold and store it en masse. 

“Due to its store of value and uncorrelated characteristic, it is most likely that many financial institutions will shift their allocation to include a percentage of their wealth to it, creating an instant enormous demand for it.”

However, Brooks Macdonald warned that assets could become “a victim of their own success” over the longer term.

It explained: “Policy makers could introduce regulation which might at best heavily regulate their use. With monetary policy continuing to play such a critical role in economies and markets, especially so during the Covid-19 pandemic, policy makers are unlikely to give up such an important macroeconomic lever.”