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| 17 November, 2017

Monopoly sustains the rising price of Bitcoin

A Bitcoin (virtual currency) coin is seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, June 23, 2017. Image used for illustrative purpose.

A Bitcoin (virtual currency) coin is seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, June 23, 2017. Image used for illustrative purpose.

REUTERS/Benoit Tessier/Illustration

The cryptocurrency, which is considered a risky investment, has been the best performer among asset classes

Dubai: There has been no looking back for bitcoin prices, which has been making new peaks by each passing day.

And traditional fund managers like Schroders feels that the rising popularity shows that people are losing faith in the central banks and regulators in terms of currency printing, but multiple exchanges will break the monopolistic nature of the industry, resulting in a price downfall.

“I’m from the camp which says it’s a bubble, and also in the camp which it’s a psychological change in our world. This is a reminder that the ability of central bankers and regulators to restrain capital in a world where technological barriers are falling every day is very very hard,” said Karl Dasher, chief executive officer, Schroders North America.

“Bitcoin is a response from people who are losing faith in fiat currency system, and sort of a new-age barter system. You will see a multiple of exchanges with multiple types, and that itself will lead to a downfall in bitcoins,” he added.

Currently, most of the trading in Bitcoins is controlled by a handful of exchanges like Coinbase, claiming more than $20 billion in currency traded, Gemini Exchange or BitOasis in the UAE, among others.

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Bitcoin prices have risen from $900 in January to a record high of more than $8,000 with a market value touching more than $130 billion.

The biggest boost to the cryptocurrency came in after the so called fork was called off by rebelling miners, couple with the Chicago Mercantile Exchange announcing plans to launch Bitcoin futures in the fourth quarter.

Debate

There has been fierce debate amid rising popularity of cryptocurrencies, with Jamie Dimon, the chief executive officer of JP Morgan calling it a “fraud”, adding that it is worse than the tulip bulbs bubble in Europe in the 17th century, when a single tulip bulb was sold for 10 times the annual income of a skilled craftsman.

“There is a nasty political undertone to whole debate is do we need money without governments. Do we need the central banks?” Philippe Lespinard, co-head of fixed income, at Schroders said. “It’s an ideological debate going on.” Panellists also pointed out the possible demerits of investing into bitcoins like hacking.

“What do you need in a scenario when citizens lose trust with the governments? You need some food, some guns, or some gold, which has been used as a medium of exchange since the several thousands of years. You definitely don’t need a bitcoin,” James Sym, fund manager European equities at Schroders said, after which the delegates burst into laughter.

Optimistic investors

As bank deposits yield less and bonds give near zero returns, the baby boomers and Generation Y are seeking higher returns.

About 87 per cent of the respondents of Schroders’ survey of 30,000 investors, about 87 per cent expected income of 7 per cent on their investments.

The expectations are based on the looking at the past performance, when equities have more than 6 per cent returns since 1950, a 6.5 per cent in bonds.

However, in the uncertain market scenarios with rates going up, and possible reversal of easy money policy, has kept the upside in asset classes limited.

The survey also found out that emotions played an important role in financial decisions.

The Americans were rated the highest in terms of being emotional in taking decisions, followed by Asians and Europeans.

“Asia is the home to those both most and least influenced by emotions when it comes to money,” the survey revealed.

Investors are prioritising further investment over buying property, paying down debt or putting the money in savings accounts. Globally, 23 per cent of investors, asked about their plans for their disposable income in the next year, said putting money into markets was a top priority. Only 13 per cent said investing in or buying a property was most important, while 9 per cent wanted to pay off debt.

“Every country has different financial issues but one common theme is that people don’t tend to put away enough money to ensure a secure financial future,” Sheila Nicoll OBE, Head of Public Policy at Schroders, said.

“It is, therefore, encouraging that those who have started investing see the benefits and nearly 40 per cent of investors globally have made either further investing or saving a priority in the next year. An additional 10 per cent have also made their pension a main focus. In contrast, only 11 per cent are prioritising luxury spending. If people can make regular saving and investing a habit, it will ultimately make it far easier for them to realise their financial goals,” she said.

The study also found 13 per cent of people prioritised buying or investing in property. This figure was broadly the same across continents. Among millennials, 16 per cent made property their top priority, compared to just 11 per cent among older generations.

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