Cryptocurrencies may be in vogue, but they are not wise investments. That's according to Decalia Asset Management, which views digital cash as an enabler for black marketeers, tax evaders and scammers.
The Geneva asset management boutique has labelled cryptocurrencies ‘decentralised, volatile and often unsafe’, and argued that the likes of bitcoin lack many of the attributes of a real currency.
‘With no "real life" content and a lack of backing by a specific country’s economy, we believe that bitcoin and its counterparts are not eligible as ‘real’ reserve currencies,’ the firm said in its latest monthly outlook.
The group pointed out that unlike ‘real’ reserve currencies, cryptocurrencies are not controlled by accountable public central banks and so lack the major appeal of a currency: safety.
‘With no intrinsic value to offer, we view them essentially as speculative vehicles, akin to pyramid schemes or anonymous dealing systems for black marketeers, tax evaders and scammers.’
Even so, recent sharp price increases have caught the attention of many investors, as several online marketplaces, including banks and brokers, now offer bitcoin trading and products.
Meanwhile, six of the world’s biggest banks have joined forces in a project to create a new digital currency to rival bitcoin, headed up by UBS and worked on by Credit Suisse, Barclays, HSBC, State Street and the Canadian Imperial Bank of Commerce.
Among the bitcoin subscribers in Switzerland, Swissquote partnered up with a Luxembourg firm to offer bitcoin trading.
But Decalia believes that rather than an effective investment, the cryptocurrencies are just another bubble. The firm has taken a cautious stance on the digital currencies.
‘Indeed, not only do they score poorly in terms of stability and predictability, spurring high volatility, but they are also prone to major risks, including hacking, identity theft or scams, as witnessed by several exchange platform scandals in recent years.’
Strip it back
While the Geneva firm cautions against the cryptocurrencies, it sees opportunity in the underlying technology, blockchain.
‘We have seen an increasing number of projects relying on this technology recently, notably in the fields of education and surveying, prefiguring its great potential.’
The group advises tapping the blockchain opportunity by investing in early adopters of the technology, including PayPal, Zynga and Nasdaq.
Decalia Asset Management is not the only firm in Geneva that has been left unconvinced by the cryptocurrency craze, as Lombard Odier also warned last month against the digital currencies.
The group warned of the momentary success that bitcoin is enjoying, pointing out the potential for volatility.