The Cryptocurrency Mirage

Our stance is clear – cryptocurrencies are speculative with no meaningful valuation foundation; what’s more, they are associated with criminal activities and environmental damage.

Bitcoin, the posterchild of the crypto world, was created to pay people for computer usage associated with blockchain calculations, which are per se useful activities.

However, a conventional currency is the responsibility of a government and a central bank as part of a defined economy. Cryptocurrencies, by contrast, have no framework of support and control, and these concerns are made clear by authorities such as the Bank of England and the Financial Conduct Authority.

On 7 May, Bank of England Governor Andrew Bailey warned that cryptocurrencies ‘have no intrinsic value.’

‘I’m going to say this very bluntly again. Buy them only if you’re prepared to lose all your money,’ he said.

The governor’s comments echoed a warning back in January from the UK Financial Conduct Authority: ‘The FCA is aware that some firms are offering investments in crypto-assets, or lending or investments linked to crypto-assets, that promise high returns.

Investing in crypto-assets, or investments and lending linked to them, generally involves taking very high risks with investors’ money. If consumers invest in these types of product, they should be prepared to lose all their money.’

Some people enjoy betting on horses for fun, and others hope to make money. Whilst it is widely acknowledged that gambling on horses is a high-risk activity, it still appears less speculative than bitcoin; knowledge of form and odds could, in theory, allow a skilled and systematic operator to profit from the turf. Bitcoin, however, is more like pass-the-parcel, where a higher price is only secured for the holder seeking to sell if someone emerges to buy who’s prepared to pay up.

This leads us to consider factors that may affect future demand.

We can identify two main drivers of current demand for bitcoin:

  • a speculation masquerading as a store of value and a medium of exchange; and
  • a more sinister side associated with cyber and other crimes.

In terms of overall issues regarding acceptance, proponents of bitcoin hoped it would become a universal currency. But on 13 May, Elon Musk tweeted that Tesla will stop accepting bitcoin as payment for its cars, after doing so since February.

Apparently, he recently learned that bitcoin mining consumes an enormous amount of electricity, much of which is generated in China by burning fossil fuels. Mr Musk said on Twitter ‘We are concerned about rapid increasing use of fossil fuels for bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel’.

This is not new, however. A 2019 study by researchers at the Technical University of Munich and the Massachusetts Institute of Technology concluded that, in late 2018, the entire bitcoin network was responsible for up to 22.9mn tons of CO2 per year—similar to a large Western city or an entire developing country like Sri Lanka.

A broader problem lies within cryptocurrencies’ role in facilitating crime.

During her congressional nomination hearing on 19 January, US Treasury Secretary Janet Yellen suggested that lawmakers ‘curtail’ the use of cryptocurrencies such as bitcoin. Her concern is that they are mainly used for illegal activities, including ‘terrorist financing … and… money-laundering.’

Ms Yellen is good friends with European Central Bank President Christine Lagarde, who said the same on 13 January – bitcoin was not a currency but a ‘highly speculative asset which has conducted some funny business and some interesting and totally reprehensible-money laundering activity.’ Criminal investigations have proven this to be true, she said.

Ms Lagarde called for coordinated global regulation of cryptocurrencies.

More recently, on 6 May, the Federal Reserve’s Financial Stability Report (FSR) identified cryptocurrencies as the ninth-greatest risk to US financial stability. This was determined by a survey of wide-ranging viewpoints, and ranked behind vaccine-resistant variants, a sharp rise in real interest rates, an inflation surge, US–China tensions, risky asset valuations/correction, Treasury General Account drawdown/debt ceiling, cyberattacks, and reach for yield/leverage, that is, investors’ drive to buy riskier assets to achieve higher yields.

Interestingly, cryptocurrencies and cyberattacks are linked in part. Some cyberattacks are a form of state warfare, others are linked to extortion.

For example, Colonial Pipeline paid nearly $5 million to Eastern European hackers on 7 May, contradicting reports earlier this week that it had no intention of paying an extortion fee to help restore the US’ largest fuel pipeline.

The company paid the hefty ransom in untraceable cryptocurrency and we know that since 9-11 conventional banking operations have made it impossible for crime that involves money transfers to go untracked and untraced.

As a result, some governments have already taken action. Thus, the central bank of Turkey has banned cryptocurrency payments citing a lack of regulation and central authority for the coins.

They consider this a risk to investors who can’t recover their losses. In India, a draft bill proposing the ban on private cryptocurrencies will soon go before parliament, and one of the reasons is because it the government believes cryptocurrencies fund illegal activities. Other countries that have moved in the same direction are Nigeria, Bolivia, Ecuador, Algeria, Nepal, South Korea, Qatar, Egypt, and Bangladesh.

I believe that all governments are considering the future of digital currencies, and the framework of controls required to limit risk for the public, and to deny cybercriminals easy pay-offs.

Some may regard cryptocurrencies as ‘digital tulips,’ reminiscent of the 17th-century tulip mania in Amsterdam that drove up tulip prices beyond reason. But at least then, although fortunes were lost and made, and the corrosive influence on the Dutch economy was severe, it wasn’t an activity that was regarded by lawmakers as deeply dangerous.

Today, cryptocurrencies are speculative, environmentally harmful and associated with criminal activity. If a tide of legislation and regulation wipes all value from cryptocurrencies, they will be exposed just like the emperor’s new clothes.

Responsible investors should ask themselves why on earth they might want to hold such assets. Moreover, what sort of investment managers might be prepared to bet their clients’ hard-earned capital in such a dangerous way – risking total loss, fuelling environmental damage and facilitating global organised crime.

Disclaimer

This document is issued for information purposes only. It does not constitute the provision of financial, investment or other professional advice. The market review, analysis, and any projections contained in this document are the opinion of the author only and should not be relied upon to form the basis of any investment decisions. CCLA strongly recommends you seek independent professional advice prior to investing.

 

Terms and conditions

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CCLA Website Terms of Use

Welcome to CCLA's website for:

  • fund management services for  CCLA Funds (details of and documentation relating to all CCLA Funds is available on CCLA’s website); and
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This page provides you with information about CCLA and the legal terms and conditions (Terms of Use or Terms) on which you can access and use this website.

By using or accessing any part of this website, you confirm that you accept these Terms of Use and that you agree to comply with them.  Please read these Terms of Use carefully and make sure that you understand them before using this website. If you do not wish to be bound by these Terms you must not use or access this website.

Where necessary, we may amend these Terms of Use from time to time by updating this page.  We therefore recommend that you check this page periodically to ensure that you understand the Terms which will apply from time to time.

1. About us (CCLA)

1.1 Any reference to CCLA or we/us on this website (including these Terms of Use) means CCLA Investment Management Limited and/or CCLA Fund Managers Limited (as applicable).

1.2 CCLA Investment Management Limited (CCLA IM) is a company registered in England and Wales with company number 2183088. It is authorised and regulated by the Financial Conduct Authority under the Financial Services and Markets Act 2000 (FSMA), and is entered on the Financial Services Register under registration number 119281.

1.3 CCLA Fund Managers Limited (CCLA FM) is a company registered in England and Wales with company number 8735639.It is authorised and regulated by the Financial Conduct Authority under FSMA and is entered on the Financial Services Register under registration number 611707.

1.4  The registered office of CCLA IM and CCLA FM is Senator House, 85 Queen Victoria Street, London, EC4V 4ET.You may also contact CCLA by emailing clientservices@ccla.co.uk.

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2.1 The information on this website is intended for investors and prospective investors in the CCLA Funds and or clients or prospective clients of CCLA's services. Only certain types of investor are eligible to invest in the CCLA Funds (in summary these are charities and local authorities and certain of the CCLA Funds are restricted to particular types of these investors).

  • Charities for these purposes are charities or charitable organisations registered with the Charity Commission of England and Wales, or charities exempt from registration, or other persons eligible to participate in collective investment schemes constituted under the Church Funds Investment Measure 1958, section 24 of the Charities Act 1993 (now amended to section 96 of the Charities Act 2011), or section 25 of the Charities Act 1993 (now amended to 100 of the Charities Act 2011), or equivalent organisations in Scotland or Northern Ireland.
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4.2 Please refer to the Funds’ individual scheme particulars or prospectus for an overview of the investment risks identified by CCLA and the applicable terms and conditions for investing in the Funds, including rules concerning when sums invested may be realised by the investor. Any estimates of future capital or income returns or details of past performance on this website are for information purposes and are not to be relied on as a guide to future performance.

4.3 Persons who do not have professional experience in matters relating to investments are strongly encouraged to consult with a financial adviser before making any investment decision.

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8.1  All complaints will be handled in accordance with CCLA’s Complaints Policy  which can be found at https://www.ccla.co.uk/helpful-links/ccla-complaints-policy.

 If either CCLA IM or CCLA FM cannot meet its obligations (for example, where it has stopped trading and there are insufficient assets to meet its obligations), investors may be eligible to claim compensation up to a maximum of £85,000 from the Financial Services Compensation Scheme. There are limits on who is eligible to claim and which funds are covered. For further information about the Financial Services Compensation Scheme please refer to www.fscs.org.uk or phone 0800 678 1100.

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7.1 This website may provide links to certain websites sponsored and maintained by third parties. CCLA is not responsible for the accuracy of information contained within websites provided by third parties and makes no representations concerning the content of such third party websites. The fact that CCLA may provide a link to another website does not constitute an endorsement, authorisation, sponsorship, or affiliation by CCLA with respect to that website, its owners, or its providers. You will be responsible for complying with the terms and conditions of use for any linked website.

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9.7 Full details of CCLA’s Privacy Notice is available on CCLA’s website. Full details of CCLA’s Data Protection Policy, are available on request.

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11. Recording of communications

 Your telephone calls and electronic communications with CCLA may be recorded. You agree that CCLA may deliver copies or transcripts of such recording to any court or competent regulatory authority.  Such records of conversation and/or communications with you will be available on request for a period of five years (or, where requested by the FCA, for a period of up to seven years) from the date when a record is made.

12. General

12.1 Each of the paragraphs of these Terms of Use operates separately. If any court or relevant authority decides that any of them are unlawful or unenforceable, the remaining paragraphs will remain in full force and effect.

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12.3 These Terms of Use are governed by English law and are available only in English. You and we both agree that the courts of England and Wales will have non-exclusive jurisdiction over any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with these Terms of Use.

18 August 2021             

 

 

 

Public sector funds

Public sector funds

The Local Authorities Property Fund (“LAPF” or “the fund”) is an unregulated collective investment scheme. As such, only persons who have been assessed as elective professional clients by CCLA in respect of the fund (or are already investors in the fund) are able to access details of the fund on this website.

If you have not been assessed as an elective professional client by CCLA or are not an existing investor in the fund, please contact us to discuss this fund:

Client Services

clientservices@ccla.co.uk

0800 022 3505

I confirm that I am a local authority/public sector body as defined in section 23 of the Local Government Act 2003. I also confirm that I have been assessed as an elective professional client by CCLA and/or I am an existing investor in the LAPF.