The launch of 11 bitcoin exchange-traded funds in January saw investors plough money into bitcoin, the world’s largest digital currency by valuation.
The success of the ETFs was followed last month by the launch of both ethereum (ether) spot ETFs and spot bitcoin exchange-traded notes.
When rubber stamped by the US Securities and Exchange Commission the bitcoin ETF launches help shove the currency’s value to a record high of $73,000 (£57,000).
Recently the SEC paved the way for the launch of eight ETFs tied to ethereum, the world’s second-largest digital coin, which trades as ether.
Within a few days the Financial Conduct Authority said it would allow the launch of cryptocurrency-backed securities exchange-traded notes.
Wisdom Tree, 21Shares and Invesco listed their exchange-traded products on the London Stock Exchange at the end of last month.
Retail investors and digital assets
Neither the bitcoin or ether ETFs are accessible to UK retail investors; the UK cryptoasset-backed exchange-traded notes (CETNs) are available only to professional and institutional buyers.
In its announcement the FCA also warned investors: “Those who invest should be prepared to lose all their money.”
But they are unlikely to stay away for long. Mark Cleary, director – funds at Zedra, expects retail versions of the products to be made available at some point.
He says: “It is probably inevitable in the UK that retail investors will eventually have some exposure to digital assets returns through more traditional vehicles such as ETFs or collective investment vehicles, and innovated by middlemen.”
Buying digital gold
There is no doubt bitcoin has been a lucrative asset, particularly for those who bought in 2018 or earlier.
Vix Munro, financial coach and founder of neuro-inclusive finance support app Mad About Money, says: “I first invested in bitcoin, and some other cryptos, in 2017.
“I try not to look at the price every day, and if you have a client who wants to be in bitcoin then they will have to ride the volatility.
“Of course it is volatile, but it does have longevity. So over 15 years, if you can ride out the extreme highs and lows it's the asset that has gone up most in value.”
Munro explains that the bitcoin halving, an event which takes place every four years and took place in April, reduced the number of new bitcoins, making it even more valuable.
She says: “Bitcoin is a finite resource. There are only about 1.5mn bitcoins left of the 21mn that are available. That is why it is dubbed digital gold.”
Buying bits of bitcoin
Munro says retail investors can afford to invest directly in bitcoin. Her proviso is that they invest no more than 2 per cent of their portfolio.
She says: “Treat it as a very high-risk speculative asset, that you can afford to lose. So if someone has £100,000 to invest then they can afford to invest 2 per cent, or £2,000, in bitcoin.
