Scottish Mortgage dips its toes into cryptocurrency

22nd April 2021 17:45

Kyle Caldwell from interactive investor

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The move is the latest sign that more professional investors are taking notice of cryptocurrency.  

Scottish Mortgage (LSE:SMT) has dipped its toes into cryptocurrency, investing $100 million (£72 million) in Blockchain.com.

The UK’s biggest cryptocurrency firm announced earlier this week that it was “honoured to include” Baillie Gifford on its journey. The investment is the largest single investment in Blockchain.com to date.

A spokesperson for Baillie Gifford confirmed the $100 million investment was made via Scottish Mortgage. In terms of Scottish Mortgage’s overall portfolio, the stake is small and represents around 0.4% of its current net assets of £18 billion.

“Baillie Gifford has a long history of backing transformational growth companies at their early stages. We have a growing conviction not only in Blockchain.com’s management team and value proposition, but in its ability to make long-term investment returns for our clients,” said the spokesperson.

At the end of February, 16.6% of Scottish Mortgage’s assets were in unquoted companies, with a total value of over £3 billion. Last June, its shareholders voted in favour to increase the maximum percentage permitted in privately owned business from 25% to 30%.

The news of Scottish Mortgage’s latest investment follows its unveiling last week of two new investments: aerospace manufacturing firm Relativity Space and payments platform Adyen (EURONEXT: ADYEN).

Scottish Mortgage’s investment in Blockchain.com comes six months after Ruffer caused a stir when it disclosed that it had invested in bitcoin. The multi-asset investment trust has around 2.5% of its portfolio exposed to cryptocurrency, on the basis that it offers an inflation hedge. 

“We see bitcoin as a small but potent insurance policy. It is a young and emerging asset, with a low correlation to other parts of the portfolio. Bitcoin diversifies the portfolio’s [much larger] investments in gold and inflation-linked bonds, and acts as a hedge to some of the monetary and market risks that we see,” the group said.

In a recent video interview with interactive investor, Duncan MacInnes, co-manager of the Ruffer Investment Company, further outlined the investment case for having a small amount of exposure to bitcoin

Ruffer argues that the mainstream adoption of bitcoin by financial institutions could be around the corner.  

But other investors disagree. Rathbones’ head of multi-asset investments David Coombs suggests that to truly be part of the mainstream bitcoin would have to be regulated.

There are also ethical concerns. Chris Clothier, fund manager at CG Asset Management, says bitcoin is “nothing short of an environmental disaster”. He points out that bitcoin has a carbon footprint equal to the entire population of New Zealand because of the energy consumption required to ‘mine’ (create) new bitcoins.

Terry Smith, manager of the Fundsmith Equity fund, described bitcoin as a “pure speculative asset”. Find out why, by watching our video interview with Smith, which was recorded in February.    

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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