Investing in whisky: liquid profits on the blockchain

The whisky industry is steeped in history, but investing in the water of life has been brought up to date with P2P platforms and the blockchain.

Whisky has proved to be a very profitable investment over the last few years, says consultancy Rare Whisky 101. Its broadest measure of the market, the Apex 1000 index (compiled using the prices of 1,000 of the “most sought after” bottles of single malt), shows a total return of almost 380% over the past seven years. And now – like just about every other asset class – whisky investment is being “tokenised” and put on the blockchain.

Coins backed by the liquid-gold standard

Caskcoin is a new blockchain enterprise that hopes to raise £42m through an initial coin offering (ICO). It will create 6.5 million tokens, tradable on the Ethereum blockchain, and sell 5.2 million for £8.15 each. The remaining 1.3 million tokens will be used for management and advisers’ fees and marketing expenses. The funds will be used to buy barrels of malt and grain whisky, which will be stored in bonded warehouses and eventually bottled and sold. Investors will own whisky in proportion to the number of caskcoin digital tokens they hold (the minimum investment is £30,000), and will – when appropriate – be able to vote on whether a cask should be bottled or traded for different stock.

With the coins backed by physical assets, their value should, in theory, never fall below the value of the corresponding amount of whisky in the warehouse – which “can be withdrawn by the bearer on demand”. Records of each whisky’s provenance will be kept on the arc-net private blockchain platform with every significant event in the life of a cask being noted – from initial registration, through being filled or moved, to blending and bottling. Caskcoin’s initial portfolio will comprise 4.5% single malts (average age 27 years); 15.7% other single malts; 4% single-grain whiskies (average age 29 years); 64% other single grains; 7.2% blended whiskies and 4.6% new-make spirits.

Cryptocurrencies are still wildly speculative. Caskcoin hopes the value of the underlying stock – and hence caskcoin tokens – will double in the next ten years. But, of course, the value of the stock could fall too, and your money is not protected in any way. Also, you should be aware that the economics of bonded whisky are very different to the price fluctuations of bottles of rare single malts – so the Apex 1000 won’t necessarily tell you much about prices for whisky still in its casks.

Non-crypto alternatives

If cryptocurrencies aren’t to your taste, there is a slightly more traditional alternative. BullionVault made its reputation by enabling private investors to buy gold and precious metals stored in allocated accounts in secure vaults. In 2016, parent company Galmarley branched out into Scotch whisky with its WhiskyInvestDirect platform.

Private investors can buy wholesale maturing whisky in casks which, as with Caskcoin, are held in bonded warehouses. However, unlike with Caskcoin, investors can buy and sell their whisky to others, rather than trading a virtual token that represents the whisky. There is no minimum investment, though a 1.75% commission on purchases and sales and a minimum storage fee of £3 a month will likely make amounts below £1,000 uneconomic. Investors can buy “whisky packages” – four malt whiskies, for example, selected by the platform – or they can buy individual whiskies via the “order board” – an online exchange where users buy and sell their whiskies.

If you’re more interested in buying by the bottle, many websites operate whisky auctions – WhiskyHammer.co.uk, Whisky.auction, and Just-Whisky.co.uk, for example. And of course, there are the big auction houses such as Bonhams. But if you fancy throwing caution to the wind, there’s Bottle-Spot.com, a peer-to-peer platform that has been in operation since 2013. It lets you buy individual bottles from strangers on the internet, offered at prices up to £14,000. In this case, the buyer should definitely beware.


News bytes… RBS builds a secret digital challenger

RBS is working on plans to create a digital challenger bank to compete with the likes of Monzo, Starling and Revolut, says Mark Kleinman at Sky News. The bank has assigned former chief operating officer Mark Bailie to lead the project, which is still at a very early stage. The plans are so secret that “few people inside the company are aware of its existence”, says Kleinman. However, despite earmarking tens of million of pounds, the project “may not result in a viable new lender coming to market”. A spokeswoman told Sky News:  “We will not comment on media speculation, but we’re focused on using automation and technology to deliver a more efficient banking experience that better reflects the changing way our customers now bank.”

Property crowdfunding platform The House Crowd has become the latest P2P lender to unveil an innovative-finance Isa (IF Isa). The firm says that investors can earn an annual return of 7% by investing in secured bridging and development loans. There is a minimum investment of £1,000, and a minimum term of three years. After three years, withdrawals can be made by giving three months’ notice. The House Crowd will restrict the total investment into the IF Isa to just £2m, but will “release other IF Isa products in the 2018 tax year with different terms and criteria”.  The platform says it has completed loans totalling more than £52m since it began operations in 2012. Investors should bear in mind that funds in IF Isas are not protected by the Financial Services Compensation Scheme.

Gibraltar’s bid to become the world capital for blockchain startups and initial coin offerings (ICOs) is moving apace. Almost 200 companies are queueing up to launch ICOs on the territory’s Gibraltar Blockchain Exchange (GBX), says Laura Noonan in the fintech FT newsletter, citing GBX chief executive Nick Cowan. That’s just ten short of the total launched globally in 2017. Gibraltar aims to license and regulate the ICO business with companies required to use accredited sponsors and perform “know your customer” checks on buyers to combat fraud. The wider crypto-world is facing tighter restrictions because of fears of widespread illicit activity. Both Facebook and Google have banned adverts for ICOs and cryptocurrencies, with reports that Twitter will soon follow.