Now is not the time for Crypto, multi-asset managers warn

Cryptocurrencies have had a torrid time in 2022.

Aside from the high-profile FTX scandal and its collapse, which sent shockwaves around the world, UK regulators and policy makers have cracked down and debated cryptocurrencies in the UK.

In early December, the High Court in London ordered a number of cryptocurrency exchanges to reveal the personal details of some of their users after a fraud was discovered.

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Later in December, the FCA announced it had cracked down on misleading promotions after 164 cases of breaking the rules, many involving lenders promoting cryptocurrencies.

And while many financial advisors currently don’t think wallets should ever contain cryptocurrencies, the day may come when cryptocurrencies become regulated and thus have a place in well-diversified investment portfolios.

But what do multi-asset managers think? In their quest to provide well-diversified portfolios, alternative asset classes such as infrastructure or real estate, can and do play a role in seeking diverse income streams.

Could cryptocurrencies become an “alternative” asset class?

What the managers say

FTAdviser asked several multi-asset managers for their views on incorporating cryptocurrencies into portfolios.

Ian Jensen-Humphreys, portfolio manager at Quilter Investors, says it would be “unlikely”.

He explains: “As fundamental investors, cryptocurrencies are unlikely to become part of the multi-asset arsenal, particularly as no reliable or comprehensive way has yet been found to value cryptocurrencies in general.

“The technology behind cryptocurrencies, however, is more likely to find its way into our funds indirectly, whether through software integration or other exposures.”

Similarly, Guillaume Paillat, manager of multi-asset funds at Aviva Investors, believes it will be a long time before such assets can be properly regulated and a valuation standard assessed.

Ian Jensen-Humphreys, Quilter Investors

Paillat says: “They are lightly regulated and difficult to value, offering no direct interest or dividends, so not ideal, especially in an environment of rising interest rates.

“Plus, volatility is so volatile that it’s difficult to mix it with other traditional assets like bonds and stocks.”

He adds: “It is difficult to develop a robust investment process for such a speculation-driven asset. The potential for large losses based on little new information is astounding.

“However, with more countries supporting cryptocurrency payments, a set of more regulated “official” digital currencies could be the way of the future.”

Exchange-traded funds

Some cryptocurrency-based exchange-traded funds have received the green light from regulators such as the Securities and Exchange Commission. These could offer investors a way to get some form of synthetic exposure to cryptocurrencies without directly investing in them.

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