But bitcoin has managed it on a couple of occasions. Visit bitcoinmoney.net to see those occasions.

Its rapid ascent in the last few months has been astonishing – but, as the saying goes, what goes up must come down.

In the space of a week (admittedly one that involved the swearing in of the US president), a single bitcoin was worth:

• 14 January = $39,780 (€32,814)
• 21 January = $32,923 (€27,161) [at 12pm CET]

That’s a drop of over 17% in a week.

Compare this with 21 January 2019, when the price was $8,708.79, according to data from Coindesk.

That’s a year-on-year increase of roughly 380%.

It is, therefore, unsurprising that bitcoin is one of the most polarising assets on the market; some tout it as the next gold, while others think it is a bubble set to burst.

Tax evaders and drug smugglers

For David Coombs, head of multi-asset investments at Rathbones, it is the modern-day equivalent of bearer bonds which is one of the reasons he considers bitcoin to be “uninvestable”.

In a blog post on 12 January, he wrote: “Bearer securities were not registered in the name of any investor and were, therefore, owned by the person in whose hands they happened to be.

“So, bearer bonds and shares were an excellent way of holding assets anonymously. It was also easy to transfer their ownership. Usually via a briefcase. They tended to be the currency of choice for vagabonds (pun intended) of all types, from tax evaders to drug smugglers.

“Bearer securities were effectively a non-regulated form of wealth and payments outside of the official monetary system. Sound familiar?”

Coombs was motivated to write the blog after learning that one of Rathbones’ competitors had taken a position in bitcoin through a relatively mainstream fund, he told International Adviser.

With one of the big banks also talking up cryptocurrency, he thought “this was quite dangerous”.

“If you want to put £100 into it, go ahead. But for a mainstream fund to put investors’ money into something like this, personally, I think that’s a mistake.”

He adds: “It feels like potentially another Ponzi scheme where a lot of people could end up losing money they can’t afford.”

Key questions

Aside from their legitimacy, Coombs also takes issue with the lack of visibility around bitcoin; specifically, the person or persons known as Satoshi Nakamoto who developed it back in 2009 and hasn’t been heard of since 2011.

He likens Nakamoto to the Wizard of Oz: “a man with a huge aura of power but little physical substance”.

Coombs outlined five questions prospective investors should consider:

• How do you mine bitcoin?
• Who decides how many there are?
• Why does it take such a huge amount of computer power to mind a bitcoin and is that a good use of energy?
• Who sets the rules?
• How do you verify the supply?

Aware that he may be accused of being “an out-of touch luddite boomer”, Coombs is unmoved. “This is uninvestable for me.”

Still in its infancy

Having only been developed in 2009, it is fair to say that bitcoin is very young and still evolving, albeit very quickly.

For Jason Guthrie, director of capital markets and digital assets, Europe at WisdomTree, the accelerating acceptance of cryptocurrency has put paid to suggestions that it is a bubble.

“If it was a flash in the pan, it probably would have petered out by now,” he tells International Adviser.

Within the institutional investor space, Guthrie says there are some at the very bullish end and others who are incredibly sceptical of cryptocurrencies like bitcoin.

“Adoption is never universal across a given client segment. But I think the number of people moving from the sceptic camp into the investment camp is definitely increasing.”

When it comes to enquiries, Guthrie and his team get everything from investors ready to part with their capital to more tentative questions from people just trying to get their heads around the concept of cryptocurrencies.

“Even the most basic kind of information gathering is a good leading indication of adoption,” Guthrie says. “If something is of zero interest, you don’t look into it. And we are seeing more clients asking those questions.”

That includes some of the more traditional and historically slower players in the market; such as insurance companies and pension providers, he adds.

Of the $70bn AUM held by WisdomTree, around $200m is invested in its bitcoin strategy.

“It’s still a very, very small proportion but it is growing quickly, although I don’t expect it to be a double-digit percentage of assets anytime soon.”

Guthrie says it is “absolutely right for people to be sceptical of something they don’t understand”; but pointed out that similar knowledge gaps exist in the mainstream market that people don’t really question.

“We come from a system where we’re used to being able to point to someone and say that they run that, so it’s going to be okay. That’s the basis on which most people are comfortable with, for example, the banking system.

“But if I asked someone to explain to me the function of a central bank or how the M1 money supply works, I would say that the majority wouldn’t be able to answer.”

It’s a digital world

Whereas Rathbones’ Coombs likened bitcoin to bearer bonds, Guthrie sees it more akin to the internet.

“If we take a step back, I think it feels an awful lot like being in 1991 and talking about the internet. There was a lot of criticism and people telling you why it won’t work.

“And not everyone is going to be able to answer exactly what the vision is or how everything will net out or how humans, en masse, will respond over a 20-year period.

“Nobody in 1991 could have predicted that we would have Google and Amazon as they exist today.”

Guthrie adds: “But what you could say at that time was that the internet had this huge potential for reorganising how we share information.

“I think digital assets are going to do to financial services what the internet did to information sharing. And not being able to predict the exact course of action doesn’t make that potential not exist.”

Unconvinced

The internet comparison is one that Coombs has heard before and it is not an argument that sways him.

“A lot of people lost money on the internet,” he says, pointing to the dot.com bubble as one example.

But while the internet, as a means of communication, has a multitude of uses; bitcoin has only one, Coombs says.

“A store of value.”

But that’s not to say that he dismisses the concept of digital currencies completely.

Coombs just believes that we will end up with virtual versions of the euro, the pound and the dollar, among others.

“We will end up with a digital currency, but I’m afraid it will be regulated by the Federal Reserve or the Bank of England.

“It won’t be regulated by the Financial Conduct Authority.”

He says the survey revealed confidence levels as low as it is possible to get.

As for overarching strategic calls for next year, Coombs is looking closely at the US primaries in February and how the presidential candidates’ prospects will impact on healthcare financials, where he has significant exposure.

Coombs spelt out his strategy recently at International Adviser’s Fund Links Forum in central London’s JW Marriott Grosvenor House Hotel.

He dismissed the positive economic data for the European area as something of a “false dawn” that could be based on spurious economic signs with the impact of Brexit and European elections yet to be fully realised.

Coombs said: “We think the US economy is the most exciting because there is growth and despite it not being the cheapest, it is still the least risky and we will be adding more.

“The market is excited about European equities but we think there is more growth in the states and you have to pay up to get growth.

“We do not think growth is sustainable in Europe so while we do have some European stocks they are global earning stocks, not domestic.”

Rathbones’ strategic growth fund, considered medium risk, has a 20% exposure to US markets, as compared to its exposure in Europe which is just 7.5% and in the UK, at 13.5%.

Coombs is far more neutral on controversial president Donald Trump, claiming people on both sides have become too excited.

“There’s just far too much over analysis of Trump in a sense people get too pessimistic and then too euphoric and the reality is somewhere in the middle,” Coombs added.

“People need to calm down a bit. I think the US economy is going to grow quite steadily. I added to the US the day after the election.”

In the case of David Coombs, the seasoned lead manager at Rathbone Multi-Asset Portfolios, he made changes to his investment strategy in June last year.

“I felt Brexit was a risk once we had the general election. We added US treasuries, for example, and towards the end of the year we increased exposure to global large and mega-cap earners. We have very little exposure to domestic UK companies; BT, ITV and Next are the only three we hold.”

Coombs says that if by 20 June he feels the odds are stacked in favour of remaining in the EU, he will adjust his currency positions.

“At the moment, it suits me to have a lot of non-sterling currency in the portfolios,” he says. “I think we’ll ‘remain’, but there are so many ‘don’t knows’ at the moment. I do worry there are quite a lot of shy Brexiters who are reticent to say they want to leave because they will be seen as little Englanders.”

He has not done any number-crunching on a Brexit scenario because it has never happened, though from a currency perspective he has referenced the European exchange rate mechanism crisis in 1992.

“In theory, this could happen again. Other than that, it is very, very difficult. All we do is always check where our revenues are in the portfolio and make sure we are not overly exposed to the UK; our European content is largely Scandinavian and Swiss. We think the contagion effect of Brexit into the eurozone is quite high as well,” he says.

Wealth of experience

Coombs’ career has involved running multi-currency, multi-asset portfolios over many years, working at Hambros and Barings before joining Rathbone to launch a series of Jersey-based funds. Three of these funds are about to be launched in a Luxembourg Sicav, namely Total Returns, Strategic Growth and Enhanced Growth.

“There is inflation, plus objective for the growth funds and cash plus for the low-risk fund, and then the really important point is that we have a return target and a risk target. It stops me from taking too much risk to chase returns because I’m constantly aware that I’ve got to hit my risk target as well.”

He says liquidity risk is the most important to keep under control, because if it is not possible to trade then the price moves more, creating volatility, bigger drawdowns and correlations changes.

Liquidity requirements

“My parents are in the Strategic Growth Fund and I think about what their liquidity requirements are. So I am trying to think about underlying investors and mapping liquidity, and what that also ensures is that the volatility of my funds is lower.” 

He breaks asset classes in the three distinct groups, one of which he highlights as “liquid but not necessarily low volatility”, including long-dated and index-linked gilts and long-dated US treasuries.

“What they will have is low correlation to equities but, importantly, they are highly liquid. I have got a lot of liquidity in my funds.”

So could these investments withstand an event such as the collapse of Lehmans in 2008? “Yes, that’s exactly it. On the morning after Lehmans went bust, they would all be tradable; they’ve probably gone up so they are negatively correlated to a stress risk.” 

The next bucket, the biggest position in the Strategic Growth Fund, is labelled “equity risk”, which includes everything from corporate bonds below AA-rated, emerging debt, property Reits, commodities such as copper, and currencies like the Australian dollar. Coombs says that a lot of multi-asset funds have got diversification of returns but not diversification of risk.

The final bucket covers what he calls diversifiers, which are not liquid and can be highly volatile. “I don’t care how volatile the investment is, but I do care about volatility on my fund. This is about correlation.”

For example, he says he owns a CTA, or managed futures strategy, which has a higher risk and higher volatility than the equity market, but it is negatively correlated.

Gold also sits in this bucket, along with long/short funds, which are market-neutral, and infrastructure, though he does not hold any infrastructure currently. 

Long-term views are established through quarterly asset allocation committee meetings, while there are also weekly portfolio construction meetings with the team.