Which brings me back to an article I wrote some time ago on MasterCard. Probably only credit card and payment providers are in a position to build a business around an ‘alternative’ currency, and give it the potential to reach a sufficiently sizeable audience for it to ‘trade’ against other currencies on an equal footing. I doubt they will, and this is fundamentally why virtual currencies as a practical concept will not succeed on a large and global scale. At the moment, and probably forever, they will remain the medium of exchange for gamers, those who reject capitalist constructs such as the state and conventional currencies, those potentially not on the right side of the law and, of course, opportunistic traders. It is the latter who interest me most as an investor – the lack of knowledge regarding the range in which Bitcoins should trade creates opportunities for speculators. I suspect there are major gains (and also major losses) to be made trading virtual currencies in the coming years, albeit without the risk protection you might expect when investing. Those who would normally invest in, for example, exotic commodities may now be tempted by virtual currencies, taking big risks in exchange for the potential of large rewards by trading some of the most inefficient markets in the modern world.
James Bateman is head of multi-manager and multi-asset portfolio management for Fidelity Worldwide Investment
