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April 2022

Digital assets and blockchain technology

Blockchains, Web3, the metaverse, NFTs, cryptocurrencies, Bitcoin, Dogecoin, dApps and DAOs. These terms have surged into mainstream media, from nowhere over a decade ago. At time of writing the total value of crypto assets, if instantaneously and in a costless manner converted to USD (a large assumption), sits at around $2tn[1]. To provide some perspective, Microsoft’s total market capitalization currently sits at around this figure[2]. Are they now too big to ignore? This note explores ten important points to remember if considering an allocation to digital assets.

  1. Complexity and perceived sophistication do not make something a good investment: An innovative product will not necessarily be revolutionary. There are many highly technical solutions in the digital assets space with exciting prospects, but without the benefit of hindsight it is impossible to know what technologies will become commonplace.

‘Investors read confusing, jargon-laden articles and become convinced that smarter people than themselves are investing, so they should too’ [3]

For most, it is not necessary to gain an in-depth understanding of the mechanics and nuances of digital assets and blockchain technology. Many people drive cars without a detailed knowledge of how the gearbox works or how the engine uses the fuel to generate power. It is, however, useful to understand some high-level characteristics and considerations.

  1. There are legitimate challenges to the future of many digital assets: A philosophical debate exists around what derives an assets’ ‘value’. What gives a verifiably ‘owned’ 600×600 digital image – which can be infinitely reproduced – worth? Why is a bitcoin[4], with little use in daily life and not in physical form, valued at tens of thousands of dollars based simply on its verifiable scarcity? Why Bitcoin, and not any of the other 10,000 or so cryptocurrencies? How can widespread adoption get round the challenge of high transaction fees and slow transaction times – Ethereum (another decentralised blockchain) for example can only process up to around 30 transactions per second[5], whilst Visa claims capacity for over 65,000[6]? It’s difficult to give firm answers to these questions, though they are valid challenges for these technologies to overcome to achieve mainstream adoption.
  2. Watch out! Fraudulent activity, hacks and outright theft are real risks that exist in the space, with little-to-no route to compensation for investors. Currently, there do appear to be some significantly vulnerable points – in the process of purchasing digital assets – whereby illicit activity occurs at a cost to investors. Examples of hacked wallets, stolen funds, corrupt exchanges, and fake cryptocurrencies are frequent in financial media. These are unfortunate realities that exist. The Twitter account @web3isgreat provides insights into illicit activity in the digital assets space, with a sobering regularity[7].
  3. Transaction costs are high: Owning digital assets directly can be costly. Transaction fees are high, and liquidity could reasonably be an issue, particularly at time of large market swings. According to, median transaction fees for bitcoins tend to be around $1, though have been as high as $28 in 2021. Ethereum’s fees have been higher and more variable[8]. There are limited options to buy pooled investment products to gain exposure to digital assets, and those that are available are expensive.
  4. Much of the digital assets world is unregulated: A reasonable starting point as an investor is to first avoid any investment that is unregulated. A lack of regulation gives rise to increased risks of criminal activity at a cost to the investor, and most likely an investment in which it is more difficult to know the true inherent risks. Much of the digital assets world is unregulated. This may change in time, though the very nature of true decentralisation makes it difficult for a central regulator to engage in necessary oversight.
  5. Environmental impact concerns are valid and material: Although the digital assets industry is broadly aware of the issue and has taken steps to improve the climate impact, it is still significant. The method of verification of bitcoin transactions is energy intensive, as miners compete for newly minted bitcoins by producing the most powerful processing units. The Cambridge Bitcoin Electricity Consumption index provides some interesting comparisons[9], such as the fact that the estimated energy usage from mining bitcoins is comparable to the energy usage of countries such as Poland and comprises over 0.6% of global energy consumption. As another example, energy consumption of the Bitcoin network in a single year could power all kettles in the UK for over 30 years!
  6. There have been some great innovations: There is no doubt that there are some exciting and potentially disruptive innovations in the space. The challenge investors face is that without the benefit of hindsight it is impossible to know which innovations will pervade.
  7. Many investors can benefit from indirect exposure to digital assets: By owning a diversified basket of securities one can own the public companies that are developing, selling or implementing the technology. Investors calculate the expected future cashflows of firms – giving them a market value – and so owning these firms in a market weight gives investors the aggregate view of each company’s future.
  8. Ownership of many digital assets comes with a highly volatile journey: Significant price swings are regular in the world of digital asset ownership. In the past five years, the price of a bitcoin has seen daily movements of up to +26% and down to ‑39%[10]. It’s a bumpy ride.
  9. Many are unaware of the tax consequences of ownership: Many investors are unaware of any potential tax liabilities that may arise due to ownership. A nationwide survey[11] in the US issued by Wakefield Research – commissioned by CoinTracker – found that just 3% of respondents correctly answered a list of questions correctly relating to when crypto investors would be liable to pay tax. Proceeding without due caution can land investors in hot water.

Revolutionary technological advancement is a brilliant consequence of the capitalist system, and a key factor in economic growth. The world of digital assets and blockchain technology is exciting and it would not be entirely surprising to see some of the innovations (many of which might not even exist today) become commonplace. There is, however, a relatively deep technical knowledge required to understand digital assets, even at a high level. This does not make them a sensible investment, and any investment in cryptocurrencies should be seen as a sunk cost.

Risk warnings

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

[1], accessed 20th April 2022

[2], accessed 20th April 2022

[3]      Pickard, A. (March 2022). ‘Cryptocurrencies: The Power of Memes’.

[4]      For those eagle-eyed, grammar focussed readers the ‘b’ in bitcoin is not capitalised here. The official Bitcoin glossary states: ‘Bitcoin – with capitalization, is used when describing the concept of Bitcoin, or the entire network itself. e.g. “I was learning about the Bitcoin protocol today.”

        bitcoin – without capitalization, is used to describe bitcoins as a unit of account. e.g. “I sent ten bitcoins today.”; it is also often abbreviated BTC or XBT.’

[5] Accessed 15/04/2022





[10] Data source:

[11] Accessed 15/04/2022

Pacem Support Belfast Business Idea Award 2022

Pacem is delighted to, once again, support the Belfast Business Idea Award 2022. The Idea Award, supported by Belfast City Council, Danske Bank, Pacem, Enterprise NI and Innovation Factory, differs from other awards in that it is the strength of the idea that is assessed, rather than the achievements of the venture so far. The competition is designed to unearth, recognise and help to fast track the best business ideas in Belfast and means that people who have yet to set up a business have as much chance of winning as those who have already started to trade successfully.

Applications for the 2022 Belfast Business Idea Award will be open from Friday 1st April 2022.

The prize pool is outstanding and will make a real difference to early-stage businesses and those thinking of taking the next step with their idea. The overall winner will receive £2,500 cash plus a support package (below) worth over £3,000. The other four finalists will also receive a support package worth over £3,000 which includes:

• 1 year Innovation Factory membership (including an open plan co-working desk, access to masterclasses and on-site bespoke business mentoring)
• 1 year free access to the new ENI Community, encompassing free Eniplus membership
• Six months free accountancy services (including software) from Pacem Accounting and Tax Advisory

All Idea Award applicants will receive:• A VIP place at Finalist’s Night on Friday 6th May May where they will hear from (and get to put their questions to) some of NI’s most successful entrepreneurs.
• A 1-2-1 consultation at which they will be signposted to the most relevant sources of support for their idea or early-stage business (including funding, programmes, premises etc).

Bonds – no pain, no gain

For the past 40 years or so, bond investors have, in a sense, been spoiled by an almost continuous fall in yields from over 14% in the 1980s, which – as bond prices move in the opposite direction to yields – resulted in strong capital gains in addition to the income received. That may have felt good at the time, but each time yields fell it simply reduced the future returns from bonds from that point forwards.  UK 5-year gilt yields, for example, eventually reached a point – 0% – where they delivered no expected return at all, even before inflation was taken into account.  The insurance premium for owning high quality bonds to balance a portfolio against equity market falls was very high, but there was not much one could do to avoid this.

If you ask any investor if they would like higher or lower returns in the future the answer is a given.  Today the Bank of England’s base rate is only 0.75%.   Fortunately, short-dated, high-quality bonds in a number of major markets are now yielding in the region of 1.5% to 2.5% as yields have risen quite substantially over the past few weeks, as markets have begun to reflect the risks of higher-for-longer inflation.  The chart below shows what has happened to various global bond yields since the end of 2020. Going forwards that is a good thing.

Figure 1: Bond yields have been rising fast

Data source: UK – Bank of England, US – Federal Reserve, Australia – Reserve Bank of Australia

Unavoidably, the short-term cost of attaining higher yields is small capital losses on shorter-dated bonds.  These should be viewed in the context of the potential downside of equities at times of poor markets and other bond alternatives.  For a longer-term investor this should be seen as a price worth paying for higher future returns.

To illustrate the point, imagine that you bought a bond yielding 1% a few weeks ago, but yields demanded by investors to own these bonds have now risen to 3%. If you wanted to sell your bond no-one would buy it at a 1% yield, but you might find a buyer if you dropped your price, thus raising their yield.  Markets work pretty well and once its price fell to deliver a yield of 3%, you would start getting bids.

Although you suffered a capital loss[1], your bonds now have a higher yield going forward, which will compensate you for this loss over time[2] and deliver a higher return thereafter.  That is a good thing for any longer-term investor.

The news potentially gets better.  Today, there is quite a steep difference between cash rates and five-year bonds in some markets.  As a hypothetical example, if you hold a five-year bond for a year, it becomes a four-year bond, and its yield will reduce. We also know that yield falls lead to price rises.  So, our expected return from owning bonds will therefore be the sum of the yield-to-maturity on the bonds held plus any capital gain that might arise from a steep bond yield curve (this is known in the bond world as ‘roll-down yield’). Note though that there are no guarantees that this extra return will be collected as market yield movements, which are random in nature, may change the picture.

It is also worth noting that the yield rise impact has been materially less severe in high quality, shorter-dated bonds than for longer-dated and lower quality bonds, as the chart below illustrates.

Figure 2: Longer-dated and lower quality bonds have taken more pain in 2022

Source: YTD to 30-3-2022.  Various ETFs (see endnote). * = hedged to GBP

In reality, no one knows if yields will rise again, stay the same or fall. Remember that if there was any certainty in which direction yields should move, they would already have moved!  If they do rise again, owners of bonds will take a bit more pain, but they will end up in an even better place with yet higher expected future returns. Patience and a long-term view are required.

No pain, no gain.

Risk warnings

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Endnote – Figure 2 data series:

iShares UK Gilts 0-5yr ETF GBP Dist., iShares £ Corp Bond 0-5yr ETF GBP Dist., iShares Global HY Corp Bd ETF GBP H Dist., iShares Global Corp Bond ETF GBP H Dist., iShares Core UK Gilts ETF GBP Dist., iShares £ Index-Lnkd Gilts ETF GBP Dist., iShares JP Morgan $ EM Bd ETF GBP H Dist.

[1] The actual amount of the loss is equivalent to the duration of the bonds multiplied by the rise in yields e.g. 3 year bonds with a 1% yield rise will fall by 3%.  Duration is similar to the maturity of the bonds.

[2] In practice, the time it takes to recoup these losses and begin to benefit from the higher yields is equivalent to the duration of your bond portfolio.  Short-dated bonds take less time than longer-dated bonds to start benefitting from higher yields.

Spare Room to Stellar: The Lusso Tan Story

Pacem is delighted to continue its support of an initiative entitled ‘Spare Room to Stellar‘, alongside Belfast City Council and Danske Bank. Spare room to stellar is designed to inspire and equip Belfast entrepreneurs to start and grow a business. It does this by firstly sharing the stories and lessons of businesses that started in a spare room in Belfast and have gone on to compete, and win, on a global scale.

The second film released in the 2022 series is that of Lynsey Bennett and Lusso Tan. Hear how Lynsey started her ever-expanding, revolutionary tanning brand providing inspiration and tips for early-stage businesses and entrepreneurs alike.

Watch the highs, lows, habits and how-tos of starting/growing a business from humble beginnings. Sit back, enjoy and then act on your idea or early venture by booking a signposting consultation over at 

You can watch the Lusso Tan story here:

Employee Spotlight – Jamie Galway

Each fortnight we will be spotlighting a member of the team so that you can get to know the people behind the Pacem brand. This week we feature trainee accounting technician, Jamie Galway. Jamie joined Pacem as an apprentice in August 2021. She is currently completing her HLA Level 5 Accounting Technicians course and supports our accountancy team in delivering a range of services including preparing accounts, bookkeeping and payroll.

Jamie tells us a bit more about herself below.

Employee name
Jamie Galway

Your role at Pacem
Trainee Accounting Technician

How long have you been with Pacem?
7 months

What does your day-to-day role entail?
On a daily basis I support the accountancy team in delivering a range of services for our clients. This usually involves VAT returns, year-end accounts, both weekly and monthly payroll as well as some general admin tasks.

How would you describe yourself in three words?
Motivated, positive and friendly

Tell us something that might surprise us about you.
From the age of 4 up until I was 18 I was an Irish dancer for Dominic Graham School of Irish Dance. Almost every summer we were visiting different countries to perform in their Celtic festivals and taught the locals some of our moves, however our favourite festival was Festival de Ortigueira as this was like a second home for us!

What do you like most about your job?
I really enjoy learning every day alongside my college classes on a Monday as I can put everything I have studied into practice, which I find really helps. I do also enjoy doing a little VAT or bank reconciliation in work, I don’t know what it is about them that I find satisfying but I do like problem solving!

Favourite Food
100% has to be a chippy, although Morton’s in Ballycastle is the go to!

What is something you learned in the last week?
This week I discovered that running really isn’t as easy as some people make it look! I have been training for my first half marathon in London in just over 2 weeks and I still struggle to break through the ‘wall’ that people talk about!

Favourite film
This is a tough one although I’m going to have to go with the Harry Potter movies as a collective or Fury as my favourite war movie.