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To the optimist, digital currencies offer an exciting new investment opportunity. To those who approach their personal financial choices with a high degree of caution, exchanging hard-earned cash for Bitcoins or Ripple is a transaction that must appear fraught with risk.
Both perspectives are understandable. In December last year, the value of a Bitcoin peaked at around $20,000, generating huge excitement in the process. By January it had started to fall and currently stands at around $6,000. Still good news for those who bought into digital currency when it was worth hundreds of dollars rather than thousands. But something of a disaster for investors who dipped a toe in the Bitcoin market when it was at its peak.
So investors face a dilemma. On the one hand, missing out on digital currencies could mean passing on an opportunity to see the value of an original investment grow many times over. But the other side of the coin is that rapid fluctuations in the market can result in the investment being wiped out. And without any in-depth knowledge of why blockchain currencies move in value, an investor might easily get his or her fingers burned.
But the cryptocurrency marketplace is evolving rapidly and last week a UK financial services startup announced the launch of a new fund aimed at providing an easy way into the cryptocurrency investment universe
Conceived by finance professional Andrew Pritchard, the 10x Growth Account allows investors to put money into a portfolio of cryptocurrencies, thus removing the complexity surrounding any decision over which particular digital coin to buy, while also making it less likely that the investor will fall victim to a sharp fall in values.
A Multitude of Choices
And as the concept behind the fund illustrates, Bitcoin is by no means the only game in town when it comes to purchasing cryptocurrencies, although it is certainly the most high profile.
Bitcoin itself emerged in the wake of the financial crisis in 2008 and despite ups and downs in its value, it has grown in popularity. However, when looked at as a currency rather than an investment asset, it has been criticized for slow transaction speeds. That in itself, created a gap in the market for Ripple, which has been designed to facilitate fast, efficient bank-style transactions. Other major currencies include Ethereum, Cardano and Stellar. None of them are identical in terms of their design and appeal to digital currency users.
This multitude of options has made it difficult for general, everyday investors to understand not only the opportunities but also the risks.
The First of its Kind
According to Andy Pritchard, the 10x fund is the first of its kind.
“It will,” he says, “help many more people start investing in cryptocurrency, without the worry of having to think about which coins to favour, which exchanges to use and how to invest.”
To take advantage of the new account, investors will have to find £1,000 up front, which can be paid in sterling, dollars, euros or bitcoin. That money will be held in a current account until the end of April, after which it will be closed and invested in a basket of cryptocurrencies. The coins will be stored on a secure platform, operated by the Centre for Citizen Enterprise and Governance on the Seratio.com platform. After twelve months those taking part can opt either to withdraw their funds or continue with the investment.
As Pritchard explains, 10x is open to ‘experienced investors’ – or to put it another way, people who have made at least one other investment. However, unlike some virtual currency funds, there is no requirement to be a “sophisticated” investor – usually a very high-income individual, with deep financial experience and even deeper pockets.
To reach the widest possible group of investors, Pritchard says the aim was to get the regulatory ducks in a row.
“That’s why we partnered with Seratio,” he says. “They had already been screened by the Financial Conduct Authority” (FCA).
There is, says Pritchard, the added advantage of tax relief under the Enterprise Investment Scheme. “40% of the investment will go into a social enterprise that qualifies for EIS relief,” he says.
And in addition to a portfolio of between 25 and 35 digital currencies, the fund will also include ICO tokens. Essentially these are digital tokens sold by businesses to raise capital. However, in the world of blockchain, these tokens have the attributes of cryptocurrencies in that they grow or fall in value and can also be traded.
The idea behind all this is that any risks are hedged, not only by the 30% tax relief available via EIS but, more fundamentally, by the fact that if one or two currencies fall sharply, that will be offset by stability or growth in the portfolio as a whole.
“And we also rebalance the portfolio,” says Pritchard. “We want to avoid anyone currency becoming dominant.”
This is a young market and no one can really say whether, over time, the value of cryptocurrencies will rocket higher, stabilise or fall back. Prichard’s own view is that a market that is now worth half a trillion dollars will rise a peak of between 6 and 10 trillion. But there are no guarantees.
The likelihood is that we’ll be seeing more funds designed to attract investors into the cryptocurrency universe. For instance, earlier this year, entrepreneurs Doug Barrowman and Baroness Michelle Mone – founder of the Ultimo lingerie brand – launched Equi a Venture Capital Fund, enabling investors to buy ICO tokens linked to fast growth companies. In its way, the idea behind Equi was similar to the goal of 10x in that it was seeking to open up investment opportunities.
“I have been in the VC industry for around 30 years,” says Doug Barrowman. “Blockchain is now allowing non-professionals to invest.” However, in the case of Equi, the offer is open only to High Net Worth sophisticated investors.
So cryptocurrency-based investment should become easier, but even when investing in a fund, it’s important that potential investors take time to familiarise themselves with the marketplace. Self-education is key.