Is the mainstream adoption of crypto-assets inevitable or even likely? According to Elon Musk, not until the industry goes greener, by moving mining transactions on a more sustainable footing. In a U-turn announcement made earlier this week, the founder of Tesla revealed that Bitcoin will no longer be accepted as payment for its cars, causing the coin's price to plunge and wiping off an estimated $365 billion from the entire cryptocurrency market.
With high-net worth families increasingly focused on the social and environment impact of their businesses and investments, ESG considerations are being hard-wired into trust deeds and incorporated into trustees' investment processes. Trustees in that position will clearly need to think twice before acceding to requests to consider investing into Bitcoin.
But what about trustees not subject to such constraints as a matter of the drafting of the trust deed or guidance in Letters of Wishes?
While crypto-assets may be exciting on many levels, the Tesla turn-about illustrates two further points which trustees considering such investments would need to bear in mind. Firstly, it is the often cited volatility of crypto-assets, and secondly the lack of liquidity for large holdings. No wonder Tesla is not looking to disinvest, but will instead retain its $1.5 billion worth of Bitcoin.
As with any other investment decision, trustees considering entering the crypto-assets market would need to ensure that they act within their powers and for the benefit of their beneficiaries. Given the riskier nature of crypto assets, a prudent trustee would need to be satisfied of the suitability of investing in distributed ledger technology generally given the size and composition of the trust fund as a whole, as well as be able to justify its particular choice of crypto investment/platform. There will also be the practical considerations of proper and safe custody of, as well as access to, the “private key” at all times to minimise the risk of loss of the entire investment.
While a robust decision-making process, underpinned by thorough due diligence and expert technical advice, should go a long way towards trustees' meeting their fiduciary duties, it is important that they exercise great caution in relation to what is, currently, an exciting in terms of its growth potential, yet highly speculative investment.
Bitcoin's value was still down 8.85% percent over the 24 hour period since Elon Musk's shock announcement that Tesla will no longer accept Bitcoin as a form of payment due to environmental factors.