WITH prevailing low interest rates cash has not been on many investors’ radar screens in recent years, but it does provide some useful features.

For example, the low volatility and uncorrelation with other assets means it can significantly dampen portfolio volatility. It also provides optionality, meaning it can be converted into any other asset class very quickly without the need to sell, await settlement and reinvest.

Although interest rates on cash have been low there has been a way to make good returns from cash in recent years - by investing in currencies. And the currency grabbing all the headlines recently has been cryptocurrency, particularly Bitcoin, which has been around for nearly ten years.

Bitcoin has captured the imagination because between July 19, 2010 and December 11, 2017 the price of each Bitcoin climbed more than 29 million per cent - pushing $1 to $292,494 - and spawned a deluge of rival digital currencies.

Cryptocurrencies don’t perform the functions of cash very well. First, they have been too volatile to provide a safe store of wealth.

Secondly, they don’t provide a quick medium of exchange - it typically takes five hours for a Bitcoin transaction to be recorded, which is not handy if you are buying a cup of coffee.

And thirdly, they don’t yet provide the common standard by which the value of different goods and services can be measured. Not many coffee shops quote prices in Bitcoin.

So, if cryptocurrencies cannot be considered as cash, could they still be regarded as a new asset class, or the new digital gold?

Bitcoin doesn’t pay any interest so you have to hope someone else will pay more for your Bitcoins in the future in order to make a profit.

Commodities fit this description and today they are widely regarded as a separate asset class, although commodities like gold enjoy a lengthy track record. Without that price history, it is difficult for investors to form a view on where the price of a cryptocurrency is heading.

Commodity prices are also driven by the economy so it is possible to form a view of the price in relation to economic news-flow. Instead the hope for many has been that Bitcoin will become more mainstream and demand will increase.

But with some countries attempting to ban cryptocurrencies as they are regarded as criminals’ currency of choice, it is unclear if Bitcoin or any other cryptocurrency will manage to acquire a long track record.

It is also unclear if, like gold, cryptocurrencies will acquire a scarcity value. After all, there is nothing to prevent rival coins, with identical characteristics to Bitcoin, from being minted.

In a world where central banks have been printing money and government deficits have ballooned, cryptocurrencies’ appeal to investors is easy to understand, but the idea that Bitcoin can continue to command a hefty premium to rival cryptocurrencies seems fanciful.

While it may be the best known by virtue of its age and media coverage, it offers no other obvious advantage. It is not as if it is a company that is able to employ marketing techniques to differentiate its product from competitors.

The likelihood is that in the long term cryptocurrencies themselves will prove to be little more than a craze. Unprecedented money printing by central banks and soaring government deficits have provided a fertile backdrop by encouraging investors to seek out alternative forms of money that authorities are unable to debase. The fact they offer anonymity due to the technology underpinning them has only magnified their attractions in some quarters, but there are better options out there.

David Thomson is chief investment officer at VWM Wealth.