Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

BITCOIN is growing up. Once the bad boy of alternative asset classes, the launch of the US’ first Bitcoin Exchange Traded Fund (ETF) signals the next step in Bitcoin’s efforts to appeal to more conservative investors.

The ProShares Bitcoin Strategy ETF began trading earlier this week in the US to a rapturous reception. The world’s most popular cryptocurrency rallied to a record high yesterday of over $67,000, after falling to $28,000 as recently as June. Please remember past performance is not a reliable indicator of future returns.

Previously, access to Bitcoin was almost entirely limited to online exchanges which boasted little to no regulatory oversight. Now, American investors can hold Bitcoin alongside the traditional asset classes in their portfolio.

Some are heralding this as a new dawn for crypto. Bitcoin afficionados are less keen.

Rather than holding actual Bitcoin, the fund invests in Bitcoin “futures” - essentially bets on the future price of the currency. That means it’s likely to lag the performance of Bitcoin-proper.

Trading in futures also adds cost. Add that together and investors who choose the ETF over exchanges are likely to end up paying more for worse performance. Hmm.

This isn’t one for the purists, but then maybe that’s the point. The conversation around Bitcoin has started to change over the past few years. Plenty of us still see it as a ‘get rich quick scheme’ - fine for some, but too complex and risky for our liking - while others see Bitcoin as a new way to diversify a portfolio.

With traditional rules around asset allocation under strain and with markets looking increasingly wobbly, an alternative asset whose performance is unlikely to mirror that of mainstream markets is appealing.

Bitcoin is now taking up a mantle previously reserved for alternative assets, particularly gold. Bitcoin’s supply is finite, which means it can retain its value even as central banks print infinitely more money. It’s also easy to transact - not as easy as established currencies, but easier than gold. In times of uncertainty, that’s a plus.

This is where a Bitcoin ETF starts to make some sense. There’s a market out there which can see the appeal of Bitcoin but is basically scared of it. Some investors don’t want to wade into a loosely regulated online exchange - they want a nice and easy ETF that will do the hard work for them.

For now, the product is not available in the UK. The Financial Conduct Authority (FCA) continues to block funds that have exposure to cryptocurrencies, citing oft-repeated concerns about the assets’ volatility. US regulators have given it the nod because the fund tracks Bitcoin futures rather than the asset itself, while ETFs run by fund houses are likely to be safer than assets held with exchanges.

The FCA’s continued reluctance highlights just some of the concerns that Bitcoin still attracts - its dire environmental impact is another. Nevertheless, crypto continues to chip away at the mainstream.

Five year performance

(%) As at 30 Sept

2016-2017 2017-2018 2018-2019 2019-2020 2020-2021
Bitcoin 924.2 -1.3 43.8 50.8 317.6

Past performance is not a reliable indicator of future returns

Source: Investing.com, as at 30.9.21

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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