A rapid rise in cryptocurrency prices have initiated a virtual gold rush of late, with a surge of investors and miners getting involved in Bitcoin and Ethereum.
While cryptocurrency investors have made staggering returns since the start of 2017, the lack of regulation surrounding cryptocurrencies has caused concern among traditional investors.
This raises the question: what is the perception of digital currencies like Bitcoin and Ethereum among investment fund managers?
MyBroadband spoke to numerous investment companies in South Africa about their views on cryptocurrencies.
Citadel Director and CIO George Herman said in no uncertain terms that cryptocurrencies are not considered by the company for investment.
“Cryptocurrencies are not assets. They are nothing more than loyalty points for extravagant computer games with absolutely zero intrinsic value,” said Herman.
Herman said cryptocurrencies were technically not currencies and functioned more like loyalty points.
“Cryptocurrencies are ingenious in the use of currency in their names. Just because you can use something as a medium of exchange, doesn’t make it a currency.”
“Are Avios points a currency? You can buy many things with them, but you’re actually just exchanging loyalty points for goods.”
Herman said a currency is more than an exchange medium. A currency is an entity regulated by a government and managed by a central bank.
“Cryptocurrencies are unregulated and the transactions are anonymous. They have no central bank or monetary policy attached to them,” said Herman.
“In fact, cryptocurrency is the playground of criminals revelling in the anonymity.”
Herman said that blockchains are a fantastic and disruptive technology, however, and Citadel considers investment in companies which implement and develop blockchain solutions.
When it comes to investing directly in Bitcoin or Ethereum, though, he said the lack of regulation and intrinsic value prevents Citadel from considering them.
He said Citadel will ensure it understands the role which new forms of digital payment systems can play and will monitor the regulation and changes in the cryptocurrency environment.
“As soon as digital currencies are regulated, many cryptocurrencies will exist, which will allow us the ability to value and differentiate between them,” said Herman.
“Until then, it is illegal for us to invest our clients’ money in an unregulated, over-hyped loyalty point system.”
Old Mutual told MyBroadband that cryptocurrencies are currently not an investment focus for the company.
Allan Gray told MyBroadband that cryptocurrencies are unregulated and were not considered for investment by the company.
“Cryptocurrencies are not governed within the South African regulatory framework and therefore do not form part of our investable universe,” it said.