Cryptocurrency: What It Is, and Why You Won’t Find It in Your Portfolio Today

It comes up in almost every client conversation eventually. Someone’s nephew made a fortune. Someone’s neighbour lost one. The headlines swing between “the future of money” and “the biggest bubble in history,” sometimes in the same week.

So we thought it was worth laying out, in plain language, what cryptocurrency actually is, why it exists, and why we have chosen not to own it on your behalf.

What is it, really?

Imagine a shared notebook that records every transaction between a group of people. Instead of one bank keeping that notebook in a vault, thousands of computers around the world each hold an identical copy. When someone sends money, every copy updates at once, and the network checks the entry against all the others before accepting it.

That shared notebook is called a blockchain. The “coins” are simply entries in it. There is no physical object, no certificate, and no company head office. Ownership is proven by holding a private digital key, a very long password that unlocks your entry in the ledger.

The clever part is that nobody is in charge. No bank, no government, no clearing house. The system is designed so that the participants police each other, and rewriting history would require controlling an impractical share of the network’s computing power.

The two names you’ve heard

Bitcoin launched in 2009, shortly after the global financial crisis. Its founder, writing under a pseudonym, designed it as an alternative to government-issued currency at a moment when confidence in banks was at a low point. Its defining feature is a hard-coded limit: only 21 million bitcoin will ever exist. Nobody can print more. That artificial scarcity is the entire pitch, and it is why supporters call it “digital gold.”

Ethereum arrived in 2015 and does something different. Think of Bitcoin as a single-purpose calculator and Ethereum as a programmable computer. On top of Ethereum, developers can build applications that execute automatically when conditions are met, without a middleman. Lending arrangements, digital contracts, and marketplaces have all been built there. Ether, the coin, is the fuel you pay to run those programs. It is closer to infrastructure than to currency.

There are thousands of others. The overwhelming majority have failed, and many were never serious projects to begin with.

Why does any of it exist?

The honest answer is that it exists because a meaningful number of people wanted a financial system that did not depend on trusting institutions. That impulse is not irrational. Currencies have been debased. Banks have failed. In parts of the world, moving money across a border or simply holding savings that hold their value is genuinely difficult.

Crypto also solves some real technical problems. It allows value to be transferred globally in minutes rather than days, and it makes certain kinds of automated agreements possible for the first time. The underlying technology may well end up embedded in the plumbing of the financial system.

We want to be fair here. Dismissing all of it as nonsense is lazy. Large asset managers now offer bitcoin exchange-traded funds, some public companies hold it on their balance sheets, and a serious institutional infrastructure has grown up around it. This is not 2013.

So what is it worth?

Here is where we part ways with it as an investment.

When we buy a business for you, we can estimate what it is worth. A company generates revenue, pays its costs, and produces profit. Some of that profit comes back to you as dividends, and the rest is reinvested to grow future profits. We can look at the cash it produces, make reasonable assumptions about the future, and arrive at a range of values. We might be wrong, but we can show our work.

A bond pays a stated coupon and returns your principal at maturity. A rental property produces rent. An office building produces lease income. In every case there is a stream of cash we can measure, discount, and value.

Cryptocurrency produces nothing. It has no revenue, no earnings, no dividend, no coupon, no rent. It does not build anything or sell anything. There is no cash flow to discount, and therefore no anchor for what it should be worth.

Which leaves exactly one input to the price: what the next person is willing to pay. The value is set entirely by supply and demand, and demand is set entirely by sentiment. When sentiment is good, the price rises, which improves sentiment further. When it turns, there is nothing underneath to catch it.

This is why we describe it as speculative rather than as an investment. Speculation is simply a different activity, one where the outcome depends on correctly predicting other people’s future enthusiasm rather than on the productive output of an asset.

“But gold doesn’t produce income either”

It is true. Gold produces no cash flow, and by our own logic it should be equally difficult to value. Where we distinguish the two is history and behaviour. Gold has functioned as a store of value for thousands of years, across essentially every civilisation. Central banks hold it in reserve. It has industrial and jewellery demand that provides a floor. Its price moves, but in a range that a portfolio can absorb.

Bitcoin has roughly sixteen years of history. In that time, it has repeatedly fallen 70% or more from its highs and done so within months. An asset that can halve twice in a year is not performing the job we hire defensive assets to do. It may earn that track record over decades. It has not earned it yet.

Our position

We do not hold cryptocurrency in the portfolios we manage for you. Our mandate is to grow and protect your capital using assets whose value we can assess and defend, and where our judgment can add something. In an asset priced purely on sentiment, we have no edge, and neither does anyone else who claims to.

That position is not ideological, and it is not permanent. If the picture changes in ways that give us a defensible basis for valuation and a longer record of how these assets behave through full market cycles, we will reconsider. We update our views when the evidence warrants it.

In the meantime, if you own cryptocurrency personally, we would simply suggest that you size it as you would any position that could go to zero, and that you tell us about it so we can account for it in your overall picture. Tax reporting on crypto disposals is also more involved than most people expect, and it is worth getting right.

As always, if you would like to discuss this further or have any other questions around your investments, please don’t hesitate to reach out.