The rapid rise of Bitcoin
Cryptocurrencies are digital currencies that are used as both a store of value and for online payments. It should be noted, however that their prices can be extremely volatile. By operating on a decentralised system, cryptocurrencies are not controlled by a central authority like a bank or government. Bitcoin, arguably the most well-known cryptocurrency, was introduced in 2008 and has since undergone a remarkable transformation, from an obscure and speculative digital experiment to a widely recognised and increasingly adopted asset by both retail and institutional investors.
Bitcoin’s global reach has expanded significantly over time. Central banks, corporates and retail investors have started to hold it, with many referring to it as “digital gold” – like gold, Bitcoin potentially provides a hedge against inflation because it is supply-constrained, and both are immune to government control. Bitcoin has the advantage of being easier to move over borders than gold but, currently at least, it is a lot more volatile. Moreover, many companies are beginning to accept Bitcoin (and other leading cryptocurrencies) as a form of indirect payment. For instance, cryptocurrency platforms can now be used to buy gift cards for popular brands such as Amazon, Nike, and Starbucks.
Growing familiarity with and adoption of Bitcoin has resulted in a remarkable increase in its price over time. The chart below compares the price appreciation from a base level of 100 for both Bitcoin and global equities since the end of 2011 – yes, the chart is correct, Bitcoin’s return makes global equities appear extremely muted when, in fact, global equities have appreciated by more than 240% over the period!
It is likely that use of Bitcoin, and other cryptocurrencies, will continue to rise as access and understanding continues to grow. In the US, investment by retail investors has grown since the regulator approved Bitcoin Exchange Traded Products (ETPs), investment products which can be bought on regulated stock exchanges that replicate the return of the cryptocurrency, in January 2024. New legislation – such as the US’ proposed Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act) that aims to further establish a regulatory framework – is likely to lead to more investment.
Why is Bitcoin relevant?
Bitcoin has some unique characteristics which sets it apart from other assets:
> As a non-sovereign, decentralised global asset, Bitcoin is in effect ‘borderless’ so is considered somewhat immune to geopolitical instability. It can be accessed from anywhere in the world and transactions are near-instantaneous.
> High levels of fiscal spending and the ongoing rise in government debt brings concerns about inflation and the future value of money held in those currencies. The supply constrained nature of Bitcoin means it does not face the same debasement risk.
> Bitcoin has exhibited a varying correlation with equity markets over time and can, therefore, be attractive as a diversifying asset held alongside a wider portfolio, despite its large price swings indicating that it is clearly a risky asset.
Geopolitics and high debt levels are persistent worries for global investors. As such, it seems likely that Bitcoin, and other cryptocurrencies, may become increasingly normalised as an investible asset.
How can investors access Bitcoin?
Investors can buy Bitcoin directly, but it requires setting up an account with a cryptocurrency exchange and using a digital wallet (e.g. Coinbase) to store it. While accessible, online wallets carry security risks as they are particularly susceptible to hacking attempts.
As noted above, in some countries, such as the US, investors can hold Bitcoin indirectly using cryptocurrency ETPs. While this means trusting a third-party custodian to hold your asset, these are highly regulated securities, so the risk of theft is extremely low. Indeed, we use several ETPs within our multi-asset portfolios to gain exposure to more traditional assets such as global equities or gold. Last year the UK’s financial regulator, the Financial Conduct Authority (FCA), approved the launch of cryptocurrency ETPs for professional investors. Permissions were not extended to retail investors as they adopted the view that these assets were ill-suited for retail customers who may be unable to assess the risks involved. This stance is perhaps understandable given the huge price volatility and lack of education surrounding the asset class.
However, the rising popularity of Bitcoin ETPs globally is likely to aid the ability for investors to buy and sell large quantities and, ultimately, help to dampen price swings over the long-term.
The FCA’s stance has now changed. Last quarter, they began a consultation on lifting the ban for individuals and gathered feedback from various stakeholders with many factors, including safety and accessibility, considered. The outcome of this consultation has just been announced, and retail consumers will be allowed to access cryptocurrency ETPs from the 8th of October 2025. This could be transformative for the UK market in digital assets by vastly increasing the accessibility of the asset class and enable inclusion in wrappers such as SIPPs and ISAs. The instruments must be traded on an FCA-approved, UK-based investment exchange (The London Stock Exchange) and financial promotion rules will apply. It should be noted again, however, that these are high-risk digital assets and are not covered by the Financial Services Compensation Scheme.
