Finance experts have sounded the alarm over fears pension funds are involved in a “deeply irresponsible” gamble to invest in Bitcoin.
Investment in cryptocurrency is considered highly speculative by many analysts while critics argue that gambling anyone’s pension pot by investing in the sector could be disastrous.
The row has been triggered by a decision by the Cartwright Pension Trusts to advise a UK defined benefit (DB) pension scheme on allocating 3 percent of their investment portfolio to holding Bitcoin – the first known transaction of its kind in the UK.
There is potential for huge rewards given a single Bitcoin’s value has leapt by around 160 percent in the past year to around £80,000, yet equally dramatic falls are a serious risk.
Anita Wright, Independent Financial Adviser at Bolton James, said: “The decision of a UK DB pension scheme to allocate its funds under management to Bitcoin represents a bold move into speculative territory.
“While Bitcoin’s recent surge in value has undoubtedly boosted the scheme’s returns, such a volatile and highly speculative asset is fundamentally at odds with the traditional objectives of DB schemes: providing stability and ensuring liabilities to members are met when they retire.”
She warned: “Bitcoin’s extreme price movements make it more of a high-risk, short-term speculative investment rather than a buy-and-hold asset for long-term security. It’s challenging to envisage many DB schemes following suit, and if they do, such allocations are likely to remain minimal.
“Bitcoin’s decentralisation and lack of direct government control contrast starkly with fiat currencies. While the central bank digital currencies may shape the future of finance, Bitcoin’s regulatory uncertainties and inherent volatility make it a risky proposition for pension funds.”
Daniel Wiltshire, Actuary and IFA at Wiltshire Wealth, called on City watchdogs to police any move to put pension funds into Bitcoin.
He said: “If true, this is deeply irresponsible. Pension trustees have an obligation to ensure scheme assets are managed prudently. This precludes taking punts on a basketcase asset class like crypto. For the sake of the members, I hope the regulator is paying attention.”
Colin Low, Managing Director at Kingsfleet, described any move to invest pensions in cryptocurrency as “very strange”.
“Pension funds should surely be investing for the long term rather than speculating over the short-term,” he said,
“Investing is buying into an asset that may rise in value over the long term but, in the interim, pays a dividend, interest or rent.
“A speculative purchase provides none of these, it simply requires a ‘greater fool’ to pay more for the asset in the future. It is ironic that a pension fund, having one of the longest investment time horizons, should speculate its beneficiaries’ assets on something that has no intrinsic value.”
Gabriel McKeown, Head of Macroeconomics at Sad Rabbit Investments, told Newspage: “In the pursuit of higher returns, the decision to allocate pension funds to Bitcoin blurs the line between prudent investing and speculative gambling with retirees’ futures.
“Bitcoin’s fundamental characteristics make it an inherently problematic asset for pension funds, with a lack of intrinsic value and cash flow generation.”
She added: “Historically, DB schemes have focused on combining government and corporate bonds with large capitalisation equities. Consequently, the shift to Bitcoin is not just a step but a giant leap on the risk spectrum, which may be difficult to justify to scheme members and regulators.
“Therefore, this decision appears to be more of a publicity stunt rather than a well-considered investment strategy, which risks trivialising the serious responsibility of managing retirement savings. The primary focus should remain on ensuring the long-term stability and security of retirement incomes, not making splashy headlines.”
Wes Wilkes, CEO at Net-Worth NTWRK, said it would wrong to rule out investing in cryptocurrencies on a small scale as part of a much bigger investment fund, which is able to dampen the effects of any volatility.
“Bitcoin has already been institutionalised, so whether it’s a currency or not is largely irrelevant. What it is, is a tradable asset that is outperforming many others and may well benefit further moving forward from here,” he said.
Any investment in cryptocurrency is considered highly speculative (Image: Getty)
David Belle, Founder and Trader at Fink Money, said: “A portfolio is just numbers made up of different betas, assets which either outperform or underperform a benchmark. Crypto is a fine asset class if it fits risk appetite. It’s all just numbers at the end of the day and trying to make those numbers deliver a return.”
Riz Malik, Independent Financial Adviser at R3 Wealth, agreed, saying: “This could mark the beginning of a new era for investment and pension portfolios. Introducing a small exposure to cryptocurrency within a pension fund could provide a cautious way to dip into the market while preserving the fund’s integrity through traditional asset classes.
“Cryptocurrency is here to stay, but the real potential lies beyond Bitcoin itself, namely in the transformative technologies and innovations emerging from, and underpinning, it.”
And Chris Barry, Director at Thomas Legal, said: “Anything less than 5 percent is sensible.
“Bitcoin is the top performing asset class over the past 10 years on average, even beating the NASDAQ. The direction of travel following Trump winning the is very bullish indeed. The US have been using pension funds to invest into crypto for the past few years and the UK should catch up.”
Bitcoin experts from bitcoin.org argue that some of the potential benefits of using Bitcoin include:
- Payment freedom – It is possible to send and receive Bitcoins anywhere in the world at any time. No bank holidays. No borders. No bureaucracy. Bitcoin allows its users to be in full control of their money.
- Security and control – Bitcoin users are in full control of their transactions. It is impossible for merchants to force unwanted or unnoticed charges as can happen with other payment methods. Bitcoin payments can be made without personal information tied to the transaction. This offers strong protection against identity theft, they say. Bitcoin users can also protect their money with backup and encryption.
The experts also argue against criticism that Bitcoin is a “ponzi scheme”, saying: “Bitcoin is a free software project with no central authority. Consequently, no one is in a position to make fraudulent representations about investment returns.
“Like other major currencies such as gold, United States dollar, euro, yen, etc. there is no guaranteed purchasing power and the exchange rate floats freely”