U.S. Markets open in 9 hrs 29 mins

Cryptocurrencies Could be Used in Fund Portfolios

bitcoin

A government taskforce has indicated that fund managers may soon be able to use cryptocurrencies such as Bitcoin in their portfolios.

The UK Jurisdiction Taskforce of the LawTech Delivery Panel has backed the use of so-called digital assets, saying they are legally equivalent to property.

It also says that “smart contracts” – pieces of code which underpin crypto-assets and execute transactions at a given point in time – have the same legal validity as any other contract. This could make them akin to using derivatives within an investment portfolio.

Sir Geoffrey Vos, chair of the taskforce and Chancellor of the High Court, said the taskforce’s decision would provide a foundation for the future utilisation of crypto-assets. Vos said the review by the panel was a “watershed” for English law and its analysis of the legal status of crypto-assets is something that no other jurisdiction has attempted.

Speaking at the Guildhall in London this week, Vos said: “The objective, of course, is to provide much-needed market confidence and a degree of legal certainty in an area that is critical to the successful development and use of crypto-assets and smart contracts in the global financial services industry and beyond.”

The support of the taskforce could also be a boon for Facebook, which announced plans to launch its own cryptocurrency – Libra – earlier this year. The social media giant had hoped to launch its digital currency in 2020, although there have been a number of setbacks in recent months with high profile names including eBay, Visa and Mastercard dropping out of the project.

Bitcoin Boom

Bitcoin shot to popularity in 2017 when the price of a single coin reached almost $20,000 before plunging to around $3,000 by the end of 2018. Today it sits at around $8,000. According to analysis by fund supermarket interactive investor, the cryptocurrency has been the top-performing asset in recent years, delivering a staggering return of 3,932% over the past five years. That compares with a return of 44% from corporate bonds, 43% from emerging markets equities and 2.6% from cash.

Vos was keen to point out that there is more to crypto than Bitcoin. He said: “There is an endless spectrum of types of crypto-asset and cryptocurrencies, many of which already are or certainly will be designed for use as wholesale and retail payments mechanisms. They will be what one might call investment grade.”

But sceptics say that investing in cryptocurrencies is little more than gambling, as the price is determined by sentiment and speculation. There are also concerns about the safety of the asset and fears around how it could affect global currencies.

Simon Peters, analyst at eToro, says: “Although this view by the LawTech Delivery Panel is interesting, it is not a ruling and probably has greater implications on the taxation of crypto-assets rather than the regulation of them.

“Some institutional fund managers are already including these assets in their portfolios but to see them included in retail funds, we need regulation in order to bring confidence to consumers, which we understand the FCA will roll out in the UK next year.”