Do you know your bitcoin from your dead coins?
Although Bitcoin is the most renowned cryptocurrency, it wasn’t the first. Launched over 30 years ago, DigiCash was the forerunner to the swathe of cryptocurrencies we see today. There are around 7,500 digital tokens currently available in the market and over 1,600 dead coins listed, which are currencies that no longer exist.
Digital currency ‘SQUID’ recently launched a ‘rug pull’ manoeuvre, whereby the currency creators abandoned the project by exchanging virtual coins for real-world cash and drained liquidity from the product, driving the coin’s value to zero. The currency creators pocketed the £3m invested. Scams like this are a regular feature of the cryptocurrency market environment. Danny Knight, Quilter Investors’ Head of investment Directors recently referred to crypto investment as, “An area of concern and caution at the moment.”
Along with regulatory concerns and a lack of clear guidance and transparency, Rick Eling Investment Director of Quilter Financial Planning, has commented that crypto has the “fundamental characteristics of a bubble. If people are buying stocks because the price has risen and for no other reason, it’s a bubble.” On valuation, he added, “how do you work out what this thing is supposed to be worth? You can value an asset normally by looking at what the underlying business activities are, the cash it generates, the profit it generates, or you can find some utility for an asset… it doesn’t have any use or business activity behind it.”
He continued, “The principles of long-term investments are eternal, you need to have a plan, you need to know how much risk you are willing to take, you need a diversified managed portfolio and you need plenty of time, discipline and patience… Please don’t think it (crypto) is a legitimate alternative to real investment – because it isn’t.”