Why this family office principal likes cryptocurrencies – volatility

“I don’t know anything about it, and I don’t want to know anything about it.” 

This was the response I had from my mother when I tried to show her how to work a computer many years ago. I gave much the same response to my son years later, when he told me about bitcoin.

Like most of you, I had read a few things about bitcoin in the press and heard the stories of people using it to pay for pizza. But I knew it wasn’t for me. Closed mind? Absolutely!

Within minutes, as a market maker, we had bought tons of gold. Then I started selling the yellow metal and ended up short and profitable. It was the most exciting, scariest, day in my business life

In two weeks, my son and I are making a presentation to a family office conference in Montreux on our experience, as a single-family office, investing in crypto and blockchain. 

Did I have an epiphany on the road to Damascus? No. I just did some research, spoke to people, listened to webinars and – pre and post-Covid – attended conferences.

What changed my mind on crypto and what is my involvement now? It probably helps that I have lived through and either profited, or mostly not, from most of the major crashes and scams of the last 50 years. I don’t bet the house on anything and try to never replace objectivity with hope. 

The US dollar came off the gold standard in 1971. I was a young gold trader at the time. The price of gold crashed, just as crypto has been doing, just now. 

It was lunchtime in the UK and, being the most junior trader I was alone with one of the secretaries eating a sandwich. Within minutes, as a market maker, we had bought tons of gold. Then I started selling the yellow metal and ended up short and profitable. It was the most exciting, scariest, day in my business life.

The world has come a long way since then and then again, not really.

Blockchain is here to stay. So what is it? The opposite of everything we use today to store data. Most of them are centralized in paper files that can be stolen, or digital files that can be hacked, tampered with, stolen or destroyed. 

But imagine if all the data about your health or wealth was broken into thousands of little bits and spread all over the entire network of computer systems. 

This makes it almost impossible to steal, hack or interfere with. And it is controlled by you, not the government or a corporation. It all means blockchain has multiple uses and moving cryptocurrencies is only one of them.

Cryptocurrencies are like fiat currencies (such as a US Dollar bill)  except they exist in a digital and not a physical format. Just a more advanced version of your debit card. 

The currencies can be traded on exchanges or directly peer to peer through De Fi – Decentralised Finance. As with traditional paper currencies, prices go up and down based on supply and demand and a perception of value. 

Without getting too whimsical or hyper, crypto is truly the people’s currency. They are not controlled or regulated by any government. They just trade freely around the world 24/7. 

Most governments are playing a perfidious game with crypto by making it harder for us to trade them, while they work out how to create their own digital currency they can then regulate.

Blockchain is not a scam but some of the 20,000 or so cryptocurrencies out there may well be. How and why do I invest?

To keep my son happy, a few years ago, I bought some bitcoin for what at the time seemed the price of a very expensive pizza. Today, this is probably worth an entire meal, and maybe the restaurant as well. 

The market has gone on expanding with growth and volatility. In order to capture returns from volatility, you need to arbitrage it rather than making directional bets. This we do via a crypto fund of funds investment structure.

We also invest in blockchain deals when we see them producing a solution to a real and not a theoretical problem.

On a personal level, I do not like the new digital world and I expect the algorithms feel much the same way about me. 

But if I can make money while the sector grows and volatility lasts, then that is what I will do.

Ian Morley is chairman of Wentworth Hall Family Office