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Investments and funds in the age of cryptocurrencies Still viewed with suspicion in some quarters, cryptocurrencies look set to make a big mark in the funds sector. Aonghus Fraser, Group Chief Technology Officer at C5 Alliance, examines why this could be a positive step forward

THE FAST-MOVING pace of technology has recently given rise to a number of revolutionary ideas and concepts that can provide attractive investment opportunities all based on blockchain technology. Essentially, a blockchain is a decentralised and distributed database or ledger with cryptography that ensures that it is tamper-proof. The most famous example of blockchain technology is Bitcoin. The cryptocurrency had a market cap in early October of US$68bn, although this had reached $80bn earlier in the year. As a pure cryptocurrency investment, investing in Bitcoin might appear to have been a safe bet. The price of a Bitcoin has gone from approximately $600 to a peak of just over $5,000 in the 12 months to the beginning of October. Not many assets can match this. Institutional investors such as JP Morgan and Morgan Stanley even bought XBT, the ISO code being used for Bitcoin, despite JP Morgan Chase CEO Jamie Dimon saying cryptocurrency “is a fraud”. There are a number of opinions that counter this, including John McAfee, the serial entrepreneur, founder and former head of McAfee Associates, the well-known computer security and anti-virus company, who believes that a Bitcoin will reach $500,000. This may be far-fetched, but

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with a maximum of 21 million Bitcoins expected to be mined (available in circulation) by 2048, classic supply and demand economics are one reason that investors are bullish about Bitcoin’s future. But what exactly does all of this mean

with a maximum of 21 million Bitcoins expected to be in circulation by 2048, classic supply and demand economics are one reason that investors are bullish about Bitcoin’s future

for the funds industry? The cryptocurrency market is bleeding edge and volatile at present. However, there are actively managed cryptocurrency funds that aim to beat the performance of Bitcoin, such as Alphabit. These funds also use a relatively new phenomenon – Initial Coin Offerings (ICOs) or token sales, a mechanism for crowdsourcing funds for developing blockchain-based products and services. Some successful ICOs have raised up to $250 million, with the total amount raised far superseding traditional venture capital in 2017 for initiatives in the blockchain space. Regulators, however, including the US Securities and Exchange Commission (SEC), are rightly cautioning investors due to the lack of regulation. Indeed, the Chinese authorities have banned ICOs. The first regulator to address the lack of regulation in this space and provide a safer environment for investors will provide great economic benefit to their jurisdiction, attracting numerous startups and businesses looking to provide innovative new services and investment opportunities. Contrary to popular belief, most cryptocurrencies aren’t anonymous – all Bitcoin transactions, for example, are stored publicly and permanently on the network. Anyone can see the balance and transactions of any Bitcoin address.

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Bl Magazine Issue 53 November/December  

Funds are the focus in this, our annual funds edition. We analyse the current state of play in the Channel Islands strong suits – real estat...

Bl Magazine Issue 53 November/December  

Funds are the focus in this, our annual funds edition. We analyse the current state of play in the Channel Islands strong suits – real estat...