Hitting superhero highs this week, the Bitcoin today sits around the $9,900 mark, following strong predictions just weeks ago that it would fly to $10,000 in a matter of weeks. Well, the prophecy has come to fruition and this morning it traded on the CEX exchange at $10,009. What’s the next step?

This week Finance Monthly asked industry experts about the predictions and got their take on the rising value of the golden crypto coin.

Nicholas Gregory, Founder and CEO, CommerceBlock:

Despite being slated by the likes of JP Morgan CEO Jamie Dimon as a “fraud”, bitcoin bulls have been rewarded for their faith in the cryptocurrency during its stellar rise over the course of this year.

Bitcoin broke the psychological $10,000 barrier overnight and it is fear of a bubble which now drives most of the headlines. But what these articles never make clear is that this is largely irrelevant and some, including myself, would even prefer there to be a correction.

In fact, a correction is badly needed to prevent bitcoin from being the world’s first currency whose value bears no relation to real-world concerns including currency reserves, GDP, trade deficits and economic outlook. If Bitcoin becomes detached from fundamentals, price discovery will be impossible and widespread adoption a distant dream.

But there is one group of people for whom a bubble would make no difference whatsoever.

Savvy business owners are already hedging their positions to cover potential losses. Holding short positions is typical for businesses carrying out international trade in traditional currencies, and it’s no different for Bitcoin, Bitcoin Cash or other digital currencies.

This means that fears that market volatility poses a threat to developed economies are misplaced.

The ability to hedge positions and currency risk, already widely used in global markets, rose up in the face of dwindling cynicism about digital currencies in the international business community in 2017. As companies learned more about the real-world benefits of cheap, frictionless international transactions and the blockchain that underpins it all, the crypto industry has been quick to provide bitcoin futures contracts as a way of limiting risk, allowing firms to hold and transmit revenues in bitcoin without feeling over-exposed.

It is the currency speculators of various sizes currently making all the noise. They have monopolised world attention as bitcoin’s price swings have moved them in and out of the black. As in traditional FX markets, there will be as many losers as winners amongst them.

Slowly though, innovative business leaders are wresting the focus of bitcoin away from the speculators and quietly pushing forward the crypto revolution.

Governments have woken up to its growing use, threatening one of the final barriers to its mainstream adoption - tax.

The tax status of bitcoin and other digital currencies in the UK is currently up for review. As it stands, they are not viewed as currencies but as assets subject to capital gains tax.

This puts bitcoin and others at an unfair disadvantage because those holding crypto would have to pay tax if their currency increased in value. Any move by the government to clarify this status would fire the starting gun for companies still sat on the fence.

Critics and politicians need to acknowledge that there is a gulf between the speculators and companies making bitcoin a commercial reality. Only then will the question of damage to the UK economy go away and its potential finally be unleashed.

Joe Pindar, Director of Product Strategy, Gemalto:

With so many new cryptocurrencies being launched on almost a daily basis, there is no doubt that the demand is there, with Bitcoin the prime example. There is a good chance of Bitcoin reaching higher levels, but the truth is the cryptocurrency bubble is going to burst at some point. However like all bubbles, calling the exact time it will go pop is extremely hard.

It reminds me a lot of the dot-com bubble in 1999, which companies like Amazon and Google survived and became essential to our daily lives. Similarly with the convenience and international nature that Bitcoin provides, once the hype has been removed, we will be left with the serious players, and the true value will be established.

My advice is not to jump in head first, but don’t expect cryptocurrencies like Bitcoin just to be an overnight sensation.

Luke Massie, Founder and Managing Director, Vibe Tickets:

The world of cryptocurrency is completely unpredictable, but it’s also one of great potential. Bitcoin has seen a significant surge in the past 12 months, but it definitely hasn’t reached the pinnacle of its popularity. The usability, combined with the economics and technology behind Bitcoin has contributed to the incredible growth we’ve seen over the past year.

At the moment, less than 0.003% of the world’s population own a crypto wallet. With the predicted value of $10,000 by the year’s end, there’s no doubt in my mind that the usability combined with the ‘fear of missing out’ paradigm, the price will sky rocket past $50,000 per Bitcoin.

We’ll also see a rise in popularity across all cryptocurrencies, including Bitcoin’s smaller rival, Ether. Although market capitalisation has stabilised over the last six months, it’s very likely that the value will reach $500 in the very near future.

Although cryptocurrency is still perceived as digital gold rather than cash, it is the future. I expect to see all forms of it grow exponentially as more people catch on to its tangibility and value in the real world.

Eleesa Dadiani, Founder, Dadiani Syndicate:

The process of valuing assets in most cases is arbitrary. Whilst there are formulas and processes, in the end it boils down to the opinion of one. For instance, an accountant can view an asset one way, but if that asset happens to be a corporate institution, perhaps the CEO of that institution might have a completely different view of the value. As he has a very different vantage point as to where the company is headed and we see this throughout business all the time.

To look at it from a mathematic rather than behavioural perspective, I propose the following: if we consider the global money supply to be around 100trillion dollars, then I ask myself, could bitcoin achieve 1% of global transactions thus 1% of global money supply? I believe it could easily achieve this within the next 3-5 years at the current rate of growth, probably sooner. We are just at the tip of the iceberg.

It is important to remember the value of money is the value of money. For instance, A marketplace that is worth 10 million dollars, is worth 10 million dollars, so if bitcoin trades at one trillion dollars - 1% of global supply - then its market capitalisation or market is worth one trillion dollars. So now it’s just a question of doing the math.

Bitcoin is currently trading at approximately $10,000, and we know that there will only be a maximum of 21 million coins mined (some are lost in circulation, some cannot be accessed due to users losing keys). So, if we times $10,000 by 21 million, we end up with $210 billion as the current market capitalisation of bitcoin. Now in order to get to one trillion, the price of bitcoin would need to be approximately 4.76x what it is now. 4.76 times $210b is $1t which means bitcoin should be trading at a minimum of $48k – that is my opinion.

Theo Valich, Head of Growth, Datum:

All speculation about the viability of Bitcoin and other major cryptocurrencies are being validated by CME’s announcement of world’s first Cryptocurrency Futures exchange. The cryptocurrency market is primarily being driven by two factors: geopolitical situation and attractiveness to the new generations of consumers: millennials and post-millennials, i.e. Generation Y.

Rise of Bitcoin value is primarily being backed by the global political situation, such as recent turmoil in Catalonia, Zimbabwe or Venezuela. Politically unstable countries are looking more forward to invest in cryptocurrencies than gold or similar assets. Thus, a national cryptocurrency could act as affordable solution to the issuance of state-controlled currency.

On the top end, progressive countries such as UAE and Singapore are either introducing or evaluating government-backed cryptocurrencies such as emCash (Emirates) or Digital Dollar (Singapore). Temasek Holdings, AAA-rated sovereign wealth fund invested in Bitcoin in 2014. Thus, Singapore’s blockchain strategy is not reactive, but a result of multiple years of evaluation.

While speculating on the value of cryptocurrencies is attractive, there’s little doubt that Bitcoin is going to go far beyond $10,000. In fact, a valuation of $25-50,000 might be reached during 2018 (but not on a such fast pace as this year), and future multiplications, or “hard forks” with Bitcoin alternatives such as Bitcoin Cash, Bitcoin Gold or “Bitcoin Something” will continue to appear. If you purchased Bitcoin in July, today your portfolio has Bitcoin, Bitcoin Cash, Bitcoin Gold and Bitcoin Platinum. Thus, a single Bitcoin is already worth more than $10,000.

Cryptocurrencies enable monetary markets to put a value of previously vague, or undefined values. Conventional fiat currencies are not suited for example, to put a value on digital data streams. Thus, so-called coins and tokens such as Datum, Litecoin, Monero or Ripple represent the simplification of future currencies based on their use. You want to become a gold vault? Bitcoin. Become a global bank? Monero. Selling your own data? Datum.

Cryptocurrencies simply represent a new asset class, with the major attractiveness being in value understandable to the new generation of consumers and investors. Millennials and post-millennials want to put a value on their life, and content created.

Ethereum at $1,000 is a matter of months. The true effect of cryptocurrencies is the new value generated. If we really simplify cryptocurrencies to the bone, they are nothing else but “crowd owned” or “crowd issued” bonds / stocks / currency.

Kerim Derhalli, CEO and Founder, Invstr:

With hedge funds and investors continuing to pile in to the volatile cryptocurrency, it seems that it could be rise by hundreds, maybe thousands, of dollars in price yet before we see a slowdown. On the one hand, analysts are extremely skeptical of an asset class that gains this much value this quickly, but on the other hand, more and more private funds and investment groups are buying into digital currencies or providing their clients the option to trade them. With it being in finite supply, the exponential rise depends on how much investors are willing to spend, and when that breaking point is.

Much of the industry talk is that the price is giving Bitcoin a new legitimacy, with a market cap now exceeding some major companies across the world. This renewed awareness, along with greater access to it through trading platforms and new trading technology, has meant a surge in interest. However, as with any commodity, currency or other instrument, it remains a risk and there’s no denying Bitcoin’s volatile past. For now, many will just see the huge gains to be made by jumping on the bandwagon – early this year Bitcoin was at just $3,000. Many hedge funds are riding the tidal wave and we’ll see many more joining in the coming months.

Even if this is a major bubble is set to burst, BTC is still considered a legitimate investment vehicle for the time being, especially as it is now being embraced and institutionalized by major banks and exchanges. It’s certainly an exciting area to invest in, but vigilant investors should take a step back and look to it as part of a broad, diversified portfolio.

We would also love to hear Your Thoughts on this, so feel free to comment below and tell us what you think!

Bitcoin is becoming a pretty normal currency in transactions worldwide, and it hasn’t failed to infiltrate paychecks either. So, if a salary is paid in part or in full in bitcoin, how is the income taxed? And how is tax applied to transactions anyway? Fiona Cincotta, Senior Market Analyst at City Index, clarifies the matter for Finance Monthly.

Bitcoin is a virtual currency, that can be generated by mining or bought using cash, credit card or a paypal account. Bitcoin began in 2009. At the start, one of the advantages of bitcoin was the fact that is wasn’t regulated and could be used in transactions to avoid tax obligations. However, tax authorities caught on and since then tax authorities across the globe have been trying to introduce and advance regulation on the bitcoin.

Whilst the cryptocurrencies exist on a global network, tax regulations in general differ for each country around the world. However, broadly speaking most tax authorities are on the same page when it comes to the treatment of the bitcoin.

As a general rule, buying a bitcoin anywhere in the world is not a taxable operation in itself. However, taxes are likely to occur when you sell that bitcoin, or possibly spend the bitcoin, and make a profit in the process.

How much you would be taxed on the transaction would then depend on several factors:

• The amount of gains;
• How long you were holding the currency for;
• If the country in question has capital gains tax.

Again, generally speaking, most countries do not consider virtual currencies to be “currencies” from a tax point of view. Instead they are treated as a property or capital asset. This means that any gains are taxed as capital gains in the year that they are realised.

As with property, capital gains tax is liable on profits, meanwhile should an investor realise a loss from a bitcoin transaction, the investor would be able to deduct any losses and therefore reduce the tax bill.

Realization happens when the bitcoin is exchanged for any other type of other property. This could be cash, services or products. Essentially almost any transaction which involves the bitcoin is in fact a realisation event and therefore gains are taxable. The following transactions could be taxable events:

• Selling a personally mined bitcoin to a third party;
• Selling bitcoins bought from someone to a third party;
• Using personally mined bitcoins to buy goods or services;
• Using bitcoins bought from someone to buy goods or services.

Scenarios which involve mining of bitcoin followed by either selling or exchanging for goods or services afterwards, will mean that the value received for the bitcoin is taxed as personal or business income, after subtracting any expenses incurred from mining eg cost electricity.

Meanwhile the other two examples, taker the bitcoin as an investment asset. Gain are taxed regardless whether the bitcoin was exchanged for money or goods or services. To cement this point let’s consider the following example. Should you own bitcoins that have increased in value, it is impossible to use them with realising a gain. Using the bitcoin to purchase a service or good, for example, is considered to be two transactions. One, selling out or realising the gain on the bitcoin and the second, being the purchase of the service or product. Few tax authorities would allow such a blatant loophole, as to not tax the transaction and ascension of wealth.

However, the implication of this is that every transaction involving the bitcoin is taxable. This in itself raises questions over the effectiveness of bitcoin as a medium of exchange, if the user has to calculate the tax liability after every transaction. So, the possibility now exists that over taxation of crypto currencies, could lead to their death.

As mentioned at the beginning tax implications can vary from jurisdiction to jurisdiction. The IRS in the US has a fairly standard approach to bitcoin taxation. The UK’s HMRC takes a more personalised approach and has has specifically said that it considers tax on bitcoins on a case by case basis. Whilst such a personalised approach is fine now, should the bitcoin increase in popularity HMRC may find its resources strained.

According to data supplied by industry website CoinDesk, last Sunday around 8pm London time, the bitcoin hit a record high of $8,101.91, surpassing nay previously recorded price on the prime cryptocoin.

This was a surprising turn of events, though expected in such a volatile market, as on Sunday November 12th the bitcoin had fallen back down to $5,500 following a huge sell-off.

The difference in a week represents more than a 47% price increase.

Nicholas Gregory, CEO of the cryptocurrency business enabler, CommerceBlock, told Finance Monthly: "Bitcoin hit a new high early Friday and has effectively besieged the psychological $8,000 mark in the process.

"Bitcoin surged on the suspension of the SegWit2x hard fork but the current momentum is less technical than systemic.

"The cryptocurrency's momentum is being driven by a growing sense among speculators that the banking industry is firmly in its cross hairs.

"Increasingly, traders and speculators are looking at banks as Blockbuster Video and Bitcoin as Netflix. 

"CME Group's futures launch, which has the potential to open the floodgates of institutional money, has compounded the fundamental narrative within bitcoin that it offers a frictionless and low- or zero-fee alternative to the global banking system.

"By announcing measures to contain the volatility of bitcoin, CME Group ironically boosted Bitcoin even further.

"Again, this represents accommodation rather than repudiation, and the cryptocurrency surged accordingly.

"The message being given to the markets is that while they're not perfect and will need to be treated with kid gloves, Bitcoin futures, and by default Bitcoin, can work."

Below Kathleen Brooks, Research Director at City Index, provides commentary on the latest bitcoin affairs.

Bitcoin is recovering from one almighty correction last week where it dropped from a high of $7,882 to a low of $5,605 in just three days. That is a drop of nearly 30%, which is technically bear market territory. However, this is Bitcoin and due to this it doesn’t react the way other asset classes do. At the start of this week Bitcoin is up $1,000, and has retraced nearly 50% of last week’s decline.

Factors that drove last week’s decline in Bitcoin included:

• The cancellation of the upcoming Bitcoin fork, Segwit2x. This may have weighed on the price as pre-fork buyers who were looking to benefit from another upsurge in price, as we saw with the fork that created Bitcoin cash back in August. This impact should be temporary.
• The European Securities and Markets Authority issued a warning on the risks of initial coin offerings, saying that they were highly risky and very speculative. They are not the first authority to warn over ICOs, in fact China banned them, with little effect on the Bitcoin price, and thus we expect Europe’s warning on ICOs to be mostly brushed off by Bitcoin traders.
• The technical signals showed bitcoin deep in overbought territory, thus there may have been some hesitation when Bitcoin approached the $8,000 mark, which may have led to a rush to the exits.

Looking at the factors that may have driven Bitcoin’s sell off, most appear short term, and indeed, the sharp bounce back on Monday suggests that traders are using any dip as a buying opportunity.

So, where could Bitcoin go next?

This is a tough one to answer as Bitcoin appears to be a runaway train overcoming any obstacle thrown in its path. From a technical perspective, there is nothing to stop Bitcoin hitting $10,000 per USD (see chart 1), as long as we close above $6,500 today. Usually when a price moves through a big psychological level it continues to move higher rather than pausing or reversing course, thus $10,000 could the start of life above 5-figures for Bitcoin bulls. Thus, any future sell offs, and we warn you that they can be severe, could be used as further buying opportunities.

Perhaps the biggest challenge for Bitcoin will come when volatility elsewhere starts to rise. If the Vix was to surge like it did back in late 2015/ early 2016, then traders may lose interest in Bitcoin and pile into other fast-moving asset prices. However, for pure speed and adrenalin, nothing beats bitcoin’s price movements right now. It’s great if you can pick up on the dip and ride the wave higher, but it is not for the faint-hearted.

Source: City Index and Bloomberg

Below Kathleen Brook, Research Director at City Index, talks Finance Monthly through the current markets environment, referencing US stock, bonds, tech, crypto and oil.

As we reach the middle of the week, there are a few signs that stocks could have a harder climb from here. After reaching record highs earlier on Tuesday, the S&P 500 closed the day lower. Advancers vs. decliners were pretty even on the day, with 243 advancers compared with 255 declining stocks, the biggest loser was Tripadvisor, which sunk on the back of growth concerns. The most striking thing about the US stock market today is not the individual movers, but instead the lead indicators and the bond market.

Lead indicators head lower

The two classic lead indicators for US stocks include the Dow Jones Transport Average and the small cap Russell 2000. The Dow Jones Transport index peaked on 13^th October and has been falling since then, it fell through its 50-day moving average on Tuesday, which is a bearish sign and could signal further losses ahead. The decline in the Russell 2000 hasn’t been as steep, but it peaked on October 5^th and sold off sharply on Tuesday as investors seemed to rush to ditch small cap stocks after yet another record high was reached.

These two lead indicators have not been able to muster enough strength to recoup recent losses, which could be a sign of investor fatigue further down the pipeline. If the selloff in these two indices continues then it is hard to see how the blue chip indices can sustain momentum as we move through November.

The bond market: a health check for stocks

The other warning sign could be coming from the 10-year bond yield. It has fallen more than 15 basis points since peaking towards the end of October. This is in contrast with the 2-year yield, which has been climbing over the same period and is up some 5 basis ponts so far this month. This has pushed the 2-10-year yield curve up to its highest level since 2007, which is typical in a market where the Fed has embarked on a rate hiking cycle, even this mild one that Janet Yellen started in 2015. Rising yields tends to mean woe for stocks, hence investors may now try to book profit instead of instigating fresh long positions as we move to the end of the year.

However, we believe that it is not as simple as rising yields spooking the market. The decline in the 10-year yield could also be relevant for stock investors, especially if it is a sign that the bond market has lowered its expectations for Trump’s tax plan and thus reduced long term growth expectations. If 10-year yields keep falling – and they are testing key support at 2.31% which is the 200-day sma – then it is hard to see how the stock market won’t follow suit and sell off on the back of tax reform stalemate in Congress. Thus, the Trump tax premium could come and bite markets on the proverbial.

Is tech the canary in the coalmine?

Tech is worth watching at this junction after massive gains so far this year. Already bond prices have started to fall for some of the major tech players including Apple, as more supply has weighed on bond yields. Is this a sign that the market could, finally, be falling out of love with tech?

What can the Vix and Bitcoin tell us about markets?

Before predicting market Armageddon, the Vix still remains below 10. Although it doesn’t usually stay low indefinitely, we want to see it move higher before confirming our fears about global risk appetite. Bitcoin is also worth watching. Before anyone can call it a safe haven we need to see how it performs in a sharp market sell off. So far this week it is down nearly $550, so if you are looking for volatility, bitcoin is the place to find it. It is hard to pinpoint the reason for the decline, maybe the market is getting nervous ahead of the upcoming fork later this month? Or maybe the market sees Bitcoin becoming mass market, both the CME and the CBOE are readying themselves for the arrival of Bitcoin futures, as a threat to its price gains? Who knows, but if traditional stock markets sell off, I will be watching to see how Bitcoin reacts and if it has any traits of a safe haven (recent price performance suggests not.)

What next for the oil price?

This week appears to be oil’s chance to steal the limelight. After surging to a high of $64.65 at one point on Tuesday, Brent crude lost $1 by session close as the market re-assessed the geopolitical risks that have propelled the oil price higher, while the fundamental picture remains unchanged. While we acknowledge that the price of oil cannot simply rise on the back of the Saudi anti-corruption crackdown, we still think that there could be some gas in the tank that could send Brent towards $70 – a key technical level - after all, the sharp increase in the price of Brent crude actually began in early October, well before talk of Opec production cut extensions and Saudi corruption purges.

Ahead today, economic data is thin on the ground, so we expect price action to take centre stage. On Thursday Brexit talks resume, this could lend some volatility to GBP, which has been one of the top performers in the G10 FX space so far this week.

With cryptocurrencies building stable ground in the currencies markets, and ICOs hitting headlines globally, here Richard Tall, Partner and Head of Financial Services at DWF, discusses the challenge of counterfeiting problems within the crypto markets.

As we have experienced in the post-2008 era, the value of a currency depends on the market's perception of its security. People want to hold assets, including currencies, which are generally recognised as being safe and fungible, and which they can swap for something they need - whether that be food, shelter or something else. Currencies that are recognised by others are of benefit to the holder. But the moment there is any doubt as to their heritage, they become less so.

Counterfeiting has long been a thorn in the side of any currency’s heritage. But now, with cryptocurrencies coming to the fore, will counterfeiting continue to exist? And if so, what could the repercussions be?

Counterfeiting capabilities    

Some of us may be familiar with Operation Bernhard, in which Nazi Germany sought to destabilise sterling through the printing of £5 notes. Aficionados of the film The Eagle has Landed will recall the significant amounts of forged £5 notes carried by the paratroopers.

Now, the passing of an individual forged note does not undermine faith in a currency. But, if a retailer were to receive a number of these which were later rejected by their bank, it follows that the retailer would be unwilling to continue to accept that note. This is still the case today and naturally, retailers are wary of high value notes which open them up to the risk of loss.

Exponents of true cryptocurrencies will tell you that they are incapable of counterfeiting - and the short history of cryptocurrencies bears that out. However, there have been scandals - for example, Mt Gox and the ethereum DAO attack - which have given rise to significant losses.

Let me elaborate. Mt Gox and similar cyber-attacks follow the same sort of pattern as normal cyber-attacks with the hacking of accounts and removal of the contents. The ethereum DAO attack took advantage of a bug in the system, which it seems quite a few people knew about. And as blockchain is open source and anybody can get to it, there will always be some brainbox out there who can do something befitting of a James Bond film.

In contrast, if you instruct your stockbroker to buy you shares in XYZ plc, you rely on your stockbroker to actually buy real shares in XYZ plc, and not something which they think is XYZ plc shares. Afterall, as a regulated entity, the stockbroker has obligations, and if they breach those then they have a regulatory problem. They will therefore trade via particular systems with certain counterparties to keep themselves, and your trade, safe.

Structural weaknesses

If you go onto a cryptocurrency trading platform, you are relying on that platform being keyed into the right blockchain to deliver to you what you ordered. A blockchain itself should be impenetrable to the malintent. However, the whole point of the blockchain is that it is a public peer to peer network. If I were a James Bond villain, I would look at nefarious means by which I could convince everyone that my blockchain was the right one.

In a way, this happens when a cryptocurrency undergoes a hard fork, which is the mechanism by which a hacked network can "roll back" to the pre-hack period or when a network needs updating. Hard forks can take various forms, but the basic premise is that when one happens, a new blockchain is created, and usually there will either be disruption to the service; preventing transactions between peers, or gross instability introduced to the system; leading to equally gross price fluctuations.

So, if I were an incredibly clever, evil mastermind and was bored of hacking crypto wallets or wallet providers (a bit like hacking a bank account) and wanted to head to the top of the criminal mastermind league table, all I would need to do is to convince trading platforms and wallet providers that my blockchain is the right one. In Operation Bernhard, the premise was the same; the enemy simply wished to convince the UK populace that their fivers were the right ones, so nobody would trust the real ones. The desired effect? Chaos and economic uncertainty.

Could this possibly happen with cryptocurrencies? Yes. But it has little to do with the sanctity of a cryptocurrency's blockchain, and much more to do with the security systems of the cryptocurrencies' platforms and wallet providers, and the extent to which they are able to verify that they are dealing with the right counterparty.

Reducing the risk

One of the straplines for using cryptocurrencies is that, as peer to peer networks, they remove the overheads associated with credit and banking. However, the overheads for credit and banking arise because those entities provide a particular type of service, and a user of that service is able to rely on being made whole if it all goes wrong for any reason - such as when a system is hacked.

Blockchains have huge numbers of applications, but one of their overwhelming threats is their public nature. It's why sophisticated networks of users deploying the blockchain for commercial purposes will most likely do so through private networks, with a view to security enhancement. Yes, this might defeat the point of cryptocurrencies for many - but it'll also reduce the risks associated with cryptocurrencies for many more, enabling them to become the functional currencies most of them seek to be.

In its new report ‘Tokenisation: Implications for the venture capital industry’, Mangrove Capital Partners highlighted that the performance of ICOs ‘has been nothing short of outstanding’ with blind investment in each ICO, including those that failed, generating an average return of 1,320%. The research also found the majority of large-scale ICOs (i.e. those over $10m) is focused on either the blockchain economy or financial services industry.

The report explains how ICOs could dramatically change capital raising for startups by allowing founders to “raise significant capital (perhaps even all the capital they could ever need) in one early round of fundraising without giving away any equity in the business”. It also explains the benefits for investors, with the disruptive new funding mechanism bringing liquidity, accountability and transparency to investing in private companies.

While the report acknowledges that the performance of ICOs is linked it the rapidly ascending value of ether – which has risen from around $8 at the start of the year to a high of $390 in September – it attributes ether’s rising value to the growth in ICO fundraisings and increasing demand for tokens. Furthermore, it predicts “the value of ether will continue to rise as more businesses opt to issue tokens and the ICO market matures.”

The report also suggests that a growing market for ICOs will lead to a decreasing requirement for venture capital and that ‘the balance of power would likely tip from the investors to the entrepreneurs’, with mid to late stage financing hit hardest. It explains how ICOs could have significant implications for the VC operating model with venture firms losing their various rights, which cover everything from board and governance issues through to economic rights in certain situations. It suggests they may also need to adopt a more active trading strategy more akin to hedge funds as investment in private companies becomes more liquid.

“ICOs do not put VCs out of the game. They are free to take capital and invest in startups of any kind, and, subject to authorisation from their own investors, could just as easily invest through Crypto into ICO as with FIAT into equity or convertible debt,” comments Skype’s former chief operating officer Michael Jackson, partner at Mangrove Capital Partners. “However, the rhythm of a weekly partners meeting and a monthly investment committee won’t work in an active environment responding to real world events.”

Mangrove’s report also suggests that regulated exchanges could be established to protect investors from fraud: “Interestingly, many projects today fit into existing regulatory frameworks and, with small changes to implementation rules, could easily be accommodated without anything other than a better understanding…In the mid term, it would be logical that a parallel structure to existing stock exchanges will be created - likely geographically and then vertically..” continues Michael Jackson, partner at Mangrove Capital Partners.

Background on ICOs:

-       The initial coin offering (ICO) market has since grown at a dizzying pace - with over $3bn raised through issuances of token-based digital currencies since the start of the year.

-       San Francisco’s Protocol Labs Inc., for example, raised $253 million in an ICO to build a network with blockchain technology on which digital storage can be bought and sold using the Filecoin tokens

-       ICOs have of course attracted considerable controversy and for good reason. ICOs currently lack a robust regulatory framework and do not confer any of the ownerships rights and legal protections that regulated shares do.

-       In September China banned ICO funding, stating that it had “seriously disrupted the economic and financial order”

-       UK regulators have warned consumers they are "very high-risk, speculative investments" and that investors “should be prepared to lose their entire stake”.

What is a token?

A token is a digital asset based on blockchain technology that can be transferred between two parties without the need for a central intermediary. Tokens created using the Ethereum blockchain can have a variety of attributes attached and, with “smart contracts” added, they articulate, verify and enforce agreements between parties. The ERC-20 token standard, defines a common list of rules for all Ethereum tokens to follow and has made launching tokens on top of the Ethereum blockchain very straightforward.

What is an Initial Coin Offering?

The use of ERC-20 tokens has led to a new method of raising capital known as an Initial Coin Offering (ICO) in which projects issue tokens to investors in exchange for digital currency such as bitcoin or ether. The tokens allow investors to use the digital services that the startup plans to produce or even sell them if they appreciate in value.

(Source: Mangrove Capital Partners)

Ray Dalio, the founder of the largest hedge fund in the world, told Henry Blodget that investors should have 5% to 10% of their portfolio in gold. During that same interview, Dalio called bitcoin a "speculative bubble" and said "bitcoin is not an effective medium exchange by and large" and "it's not easy to buy things with the bitcoin."

Dalio isn't the only one asking these questions about bitcoin. If bitcoin really is a currency, then it is important that you can buy things with it. But this may not be a fair argument. We all seem to accept gold as a storehold of wealth and as an alternative currency even though you really can't make purchases with gold.

So in an effort to fairly compare gold and bitcoin in this vein, we went out into the world to see how easy it was to spend both in everyday transactions. It turns out it isn't easy to spend either. The only person we could find who accepted gold in New York City was Donald Trump in 2011.

Bitcoin is slightly easier to spend. We couldn't use our bitcoin at Subway, which is on a few lists of retailers that accept bitcoin. Le Village, a restaurant in New York's East Village that many have reported accepts bitcoin, was closed down when we tried to eat there. But we did have some luck spending bitcoin.

We found that it was easy to use bitcoin on Overstock.com. Also, my daughter's preschool accepts bitcoin for tuition payments. But if you really want to use bitcoin in everyday transactions, you can get a debit card that allows you to spend bitcoin easily. But maybe we are simply using the wrong words when we talk about bitcoin.

As Adam Ludwin, the founder and CEO of Chain, says in his open letter to Jamie Dimon, "since this isn't about cryptocurrencies vs. fiat currencies let's stop using the word currency." He goes on to say that he prefers to think of them as "crypto assets."

According to reports, Jordan Belfort, the American stockbroker immortalized in the blockbuster movie Wolf of Wall Street, claims Initial Coin Offerings, the IPOs for new crypto coins, have become “the biggest scam ever.”

Belfort told the Financial Times that fundraising ICOs are “far worse than anything I was ever doing,” adding that “"It's the biggest scam ever, such a huge, gigantic scam that's going to blow up in so many people's faces.”

Many see crypto currencies as a massive investment in the future of finance, while other see them as a bubble, with rising prices inciting a speculative investment spin. According to official figures from CB Insights, $2 Billion was raised in ICOs in the first nine months of 2017 alone. In 2016 the same period saw $54 Million raised. Bitcoin, the leading crypto currency has also seen a rise from circa $1,000 to up to $5,000 this year.

Cryptocurrency expert and Founder of London firm CommerceBlock disagrees and says the old guard of banking and finance are running scared. Nicholas Gregory, founder and CEO of cryptocurrency enabler CommerceBlock, said: "The old guard are being cut out by ICOs which means the banks, VCs and lawyers are losing billions. No wonder they're upset.

"It's wrong to ban them because an ICO is just a way of crowdfunding investment for technology firms who choose to do it in cryptocurrency because that is their field. 

"In the old days - up to a year ago - you would go to a VC and they would decide whether to invest in your company and you would have to follow their rules. ICOs make it easier for companies to raise funds from more sources and free themselves from the straitjacket of VC interference.

"Are there scams? Of course. But there are scams in every financial system from penny stocks to fraudulent gambling sites.

"It's too easy for critics to point the finger of blame at the technology and not the criminals who exploit every loophole in every kind of commercial environment.

"Investors take a risk by buying into ICOs just as they do buying equities, even though they are not securities. But they are offered far greater transparency. There is more they can vet with ICOs because you can look at the source code of the firm you are funding. You can download the product and play with it. In the stock market all you get is a brochure.

"This is why it's more transparent and that's why VCs hate it. The VC model is all about the 1%. Only a multi-millionaire could invest in Facebook in 2009. With the ICO model, if you and I spot the next Facebook we can get in on it."

Lee Wild, Head of Equity Strategy at Interactive Investor comments for Finance Monthly:

On the FTSE 100 rally:

There have been a number of key drivers behind the FTSE 100’s latest rally, among them a weaker pound, likely increase in UK interest rates, government housing policy and a lack of any viable alternatives for investors.

There’s an inverse relationship between sterling and the FTSE 100. A weak currency is great news for the FTSE 100’s army of overseas earners who receive a windfall when expensive dollars are converted back into sterling. The US economy is thriving too, and many UK companies, like Ferguson (the old Wolseley), InterContinental Hotels and Ashtead, make much of their money there.

A more hawkish Bank of England has been good for banks, which typically generate higher margins when interest rates rise. The government’s promise to extend the Help to Buy scheme is also a massive boost to UK housebuilders Barratt Developments, Persimmon and Taylor Wimpey.

While it’s true there are fewer bargains around, investors can still find plenty of companies trading on reasonable valuation multiples paying a generous and affordable dividend. And it’s much harder to find the level of returns on offer from equities in other liquid investments.

This should underpin confidence in the stockmarket and possibly steer the FTSE 100 to an all-time high at 7,600, especially if Brexit talks go badly or a threat to Theresa May’s leadership puts pressure on sterling.

On Bitcoin:

The value of bitcoin has almost doubled in less than a month which is clearly attracting further interest from speculators. There’s evidence of growing institutional activity, too, and if China reopens cryptocurrency exchanges after the Communist Party Congress which starts next week, some believe the price could reach $10,000 by the end of the year.

However, there could be near-term turbulence around changes to the code the bitcoin network runs on, due to be implemented in mid-November.

It is crucial that retail investors understand the many risks involved in cryptocurrency trading, not least the volatility - bitcoin has lost more than a third of its value on two occasions since June. It is clearly not for the faint-hearted.

Odds are that you’ve been hearing more and more about cryptocurrency as digital tokens like bitcoin and ethereum have become valuable commodities. Converts (and investors) say that cryptocurrencies built on blockchain technology represent the future of money, finance, and commerce.

But skeptics say that digital currencies represent crowd-sourced pyramid schemes or are fuel for another tech bubble. We met with Olaf Carlson-Wee, who was the first employee at the cryptocurrency broker Coinbase, where he famously took his entire salary in bitcoin. Now, Carlson-Wee runs a hedge fund that deals exclusively in crypto-assets. We talked with Carlson-Wee in San Francisco about money, trust, and how he made his friends rich.

Eleesa Dadiani, Founder and Owner of Dadiani Fine Art, recently became the first Fine Art gallery owner in the UK to accept cryptocurrency as payment for works of art, including bitcoin and five others. Here she delves into the prospects of the fine art and other luxury markets investing in the proliferation of cryptofinance.

The luxury market is often seen as stale and self-serving, an opaque world that is difficult to penetrate and resistant to change. I should know – I’ve owned a Mayfair art gallery for three years and I have witnessed it at first hand.

Earlier this year, I decided to introduce something new to the market. My gallery - Dadiani Fine Art - became the first in Britain to accept Bitcoin and all other leading cryptocurrencies. I have since launched Dadiani Syndicate, the UK’s first and only cryptocurrency luxury goods exchange, which will allow luxury assets and commodities such as diamonds, hyper cars and bloodstock to be purchased in digital currency.

This will broaden the market, bringing a new type of buyer to art and luxury. The cryptocurrency market is currently worth over £110b and there are cryptocurrency millionaires who now want to use this wealth to buy assets.

However, this is not an entirely demand-driven move. I am doing it because I am evangelical about cryptocurrencies, the Blockchain technology that underpins them, and the profound impact they will have not only in the art world but in every sphere of business and our everyday lives. This is a revolution that goes far beyond the art and luxury markets.

Examples of work found at Dadiani Fine Art

I realise that there is still a great deal of scepticism about cryptocurrencies and it needs to be confronted head-on. The first objection people always raise is that it provides cover for criminals and encourages criminality, that it’s used on the dark web to buy drugs and the like. There’s no doubt in the very early days of Bitcoin there was a criminal element involved, but the landscape has changed a great deal since then. Furthermore there are plenty of criminals with conventional bank accounts laundering money, so let’s not pretend mainstream banks aren’t affected by the same issues.

The mistake most people make is to think of cryptocurrency as a currency. It’s not – it’s the internet of money. Money is just one of its applications, but it’s not the most important. It’s the technology behind it that is revolutionary and the coins represent the technology; that’s what people are investing in. The technology will allow us to re-claim power, paving the way for de-centralised, peer to peer transactions without the intervention of an intermediary.

People accept structures that make no sense just because they have known nothing else – they pay interest to banks and pay fees for sending money abroad just because that’s always been the way things have been done. A decentralised exchange eradicates that.

In time, cryptocurrencies will change the world of business completely, but I understand there will be resistance just as there is with every innovation. However, when traditional markets – and the art world is one of the most traditional of them all – start to embrace it then we will see real, transformational change.

Are the art and luxury markets crying out for this change? Of course not. These markets will run themselves as they choose. But once you invent the infrastructure you create the demand. Before the car was invented we happily travelled by horse; we didn’t know any better. If you are travelling on a muddy path a horse will serve you well, but on an asphalt road you would choose a car over a horse every time. Once we all used cameras to take pictures, we had no alternative; then the smartphone was invented and it killed Kodak.

For cryptocurrencies to be recognised on a global scale you need to make a start somewhere; if you can start with a market that doesn’t need to adopt them but does it anyway that sends out a powerful message. It’s a bridge to other industries and markets.

This will be a new epoch. It does not mean we are going to change the art and luxury markets out of all recognition – the value of artwork and luxury products has been created over centuries and they will always be exclusive markets – but we are giving more people the chance to buy and to do it in a different way. And when that is done peer to peer, person to person, without the intervention of a centralised authority taking big transaction fees it demonstrates the power of decentralisation. The old world remains but is powered by new world technology.

Blockchain is a smart contract; it does not to have be verified by a central authority. Once we have embraced the concept of a mathematical model that has been designed to run itself we will wake up to its possibilities. Digital ledgers will give us back control; if only we could understand that we are not in control of our money when it’s sitting in a bank.

I understand that the world fears change and there will be plenty of cultural hurdles to overcome, but this is an exciting moment. I want to be in the vanguard of this change and see the art and luxury worlds lead the charge.

Eleesa Dadiani, Founder and Owner of Dadiani Fine Art