Why Lafite and Bitcoin have more in common than you think

Head of investment at Bordeaux Index, Matthew O’Connell, tells James Lawrence why people should be backing hard assets, from fine wines to Bitcoin, during these turbulent times.

At first glance, any investment portfolio that attributes shared characteristics to digital currencies – or crypto assets – and Cru Classe Bordeaux is really stretching the imagination.

The former rarely exists in the physical world and is prone to fraudulent activity; a report published in 2020 by the EU discovered that investors had lost crypto-assets worth hundreds of millions of US dollars, due to criminal fraud. The latter is a physical and finite asset, with a proven track record of providing a good return on the initial investment.

Yet Matthew O’Connell, head of investment at Bordeaux Index, argues that both Chateau Lafite and Bitcoin can now be considered as ‘hard assets’ (something with intrinsic value) in the post-Covid world.

“Many people are calling for 2021 to be the ‘Year of Hard Assets’, driven by increasing market concerns around the likelihood of post-Covid ongoing central bank intervention (and broader fiscal policy) driving higher inflation,” said O’Connell.

“With their finite supply, full or partial disaggregation from central governments and inherent non-zero values, hard assets are usually seen as providing effective protection against inflation.”

According to O’Connell, Bitcoin and other digital currencies have been one of the key beneficiaries of this trend to invest in portfolios that skew heavily towards assets with (perceived) immutable value.

He told db that many investors now perceive the de-centralised nature of cyptocurrencies (digital tender is not dependent on government monetary policy) and finite quantity as highly attractive qualities, comparable to wine as a dependable hard asset in turbulent times.

“Regardless of the arguments for and against this categorisation for Bitcoin, it has clearly been one of the key drivers of rapid price growth and massively increased investment interest, including from a large pool of retail investors globally,” he said.

The global media is increasingly fixated on stories pertaining to fears over widespread inflation and an upsurge in commodity prices. This, says O’Connell, can only strengthen the appeal of fine wine as an investment asset – and indeed, its unlikely counterparts in the world of digital currencies.

“Wine and whisky are clearly hard assets (intrinsic non zero value, no connection to any central bank agenda) and have long term data showing their strong correlation with inflation as well as low correlation with traditional financial assets,” observed O’Connell.

“As a result, it hasn’t been a surprise to Bordeaux Index that we have seen a very significant uplift in investment activity across the second half of 2020 (new trading account openings up 60% vs 2019) and also a strong market trajectory so far in 2021 (+5% in wine and +7% in whisky).

“We expect this trend to continue and indeed pick up pace in the wine and whisky spaces given the hard asset trend and also considering that high net worth individuals and ‘retail’ investor categories – both particularly significant – are so active at present.”

Earlier this year, Bordeaux Index reported “record breaking” sales of Burgundy in 2020, with classified Bordeaux estates also performing “above expectations.” A key takeaway from the 2020 report was the buoyancy of activity seen across Asia.

“In 2020, we sold more Burgundy than any other year,” said O’Connell. “Considering the disruption caused by the Covid-19 pandemic, the overall global market’s performance was exceptional last year. Prices remained stable, with demand rising sharply for Bordeaux and Burgundy wines in the fourth quarter. Fine wine has once again proven to be a most dependable asset in a crisis.” This trend is predicted to continue into 2022 and beyond.