In its Future of Banking report, the ratings house said cryptocurrencies’ rapid price changes present a challenge to financial advisers.
“Because of the high volatility of their valuations, cryptocurrencies could also pose risks for financial advisers in dealing with their clients,” the report said.
“Merrill Lynch, for example, banned its clients’ advisers from trading bitcoin-related investments.”
S&P Global Ratings said cryptocurrencies “do not meet the basic two requisites of a currency”, and in their current form “have many characteristics of a speculative instrument”.
“We think that retail investors would be the first to bear the brunt in the event of a collapse in their market value,” the report said.
Current cryptocurrencies also have many of the characteristics of a “traditional bubble”, the report said.
However, the report added that the impact cryptocurrencies will have on the financial services industry will “be more gradual” if they become an asset class.
“That is because we believe that their future success will largely depend on the co-ordinated approach of global regulators and policymakers to regulate and enhance market participants’ confidence in these instruments,” the report said.
Last September, Magellan chief executive Hamish Douglass made similar remarks about the bitcoin cryptocurrency, arguing it was headed for a “spectacular collapse”.
One thing I don’t understand is why we keep taking ‘advice’ about cryptocurrencies from incumbent financial experts? When was the last time you saw computer programmers on the news commenting (in their position as ‘financial experts’) on financial markets? To fully understand cryptocurrency requires a thorough understanding of computer programming and distributed systems. There are not many people who have a deep fundamental knowledge of this technology AND financial markets and if we are going to listen to anyone about it, we should be listening to those that know what they are talking about. I’ve mentioned the name before and will keep mentioning it: Andreas Antonopoulos. Watch him speak (videos are free on YouTube – or you can read his books: The Internet of Money volume 1 and 2, or Mastering Bitcoin, if you’re technically inclined). This is a rare individual who has a solid fundamental understanding of this technology and has experienced first-hand the effects of currency collapse in his home country of Greece. He can explain it in a way that anyone can comprehend. Once you have heard some of his talks, you will then begin to understand the true groundbreaking nature of what is happening here.
This technology isn’t going away and it will not stop. The innovation in this area is simply mind boggling. Venezuela just released the ‘Petro’ (their own cryptocurrency), and Sweden is considering releasing the e-Krona. You can either keep pretending it doesn’t exist, or start learning. It’s difficult at first, but like anything, the more you learn the easier it becomes to grasp the concepts that are being talked about.
More and more clients will ask you (as advisers) about how to invest in this. It’s not up to you to tell them whether or not it is a good idea, nor to recommend they invest in it, however it is a good idea to be able to discuss things with them in broad terms and point them in the right direction because at some point in the next few years, this will become mainstream. Anyone in front of the curve is going to have a much easier time going forward.
The next Global Financial Crisis is upon us! The world will soon descend into darkness as the cryptocurrency market (which is what, .65% the size of the global stock market?) falters. I’ve just spent my life savings building a subterranean bunker and stocking it with canned food and bottled water. I’ve also watched 2,000 hours of karate tutorials and am now basically a black belt. I am ready. Believe the hype! 🙄 🙄 🙄
Is it incredibly speculative, volatile and fraught with danger? Yes. Are people aware of this? Yes. Will they still invest? Absolutely.