Elon Musk’s announcement by tweet that Tesla’s customers will soon be able pay for their car in bitcoin has triggered a discussion about the viability of the digital currency between investment banks and asset managers. Should bitcoin be included in investment portfolios or shouldn’t it?
Earlier this month, Citigroup wrote that bitcoin ‘may be optimally positioned to become the preferred currency for global trade’. At the same time, the bank warned in its 108-page study that there are concerns about bitcoin’s efficiency as capital and about its custody. Not to mention the impact of cryptocurrencies on the environment. Citigroup believes that in the near future ‘the tipping point will become clear of either mainstream acceptance or speculative implosion’.
Responses from other parties soon followed. Bank of America acknowledges that bitcoin has historically shown the highest returns in a short time. But the bank adds that there are serious concerns about the effects of bitcoin mining, which uses as much energy as the Netherlands in an entire year. It adds that, in its view, bitcoin is not a convincing hedge against inflation.
Not worthy of analysis
Morgan Stanley Wealth Management, on the other hand, is confident. Lisa Shalett, the chief investment officer, believes that the currency can become an investable asset class. She says the reason for this is that the legislative framework is improving, liquidity is improving and there is growing interest from institutional investors, which means the cryptocurrency can be included in clients’ portfolios, just like gold.
Others, such as Commerzbank, are decidedly negative: ‘bitcoin is not even worth having an analyst look at. It is a purely speculative asset’, the German bank snapped. Meanwhile, American asset managers are trying to launch bitcoin ETFs, but SEC is reluctant. So some seek a proxy for bitcoin.
JP Morgan Chase, for example, is launching a structured note based on the share performance of 11 companies in the JPMorgan Cryptocurrency Exposure Basket. In Europe, on the other hand, 23 cryptocurrency ETFs have already been authorised by regulators, according to consultant ETFGI.
Stable storage
BlackRock announced in January that it had filed a prospectus with the SEC to include bitcoins in its Global Allocation Fund, while US-based Fidelity also recently expressed a positive opinion on the cryptocurrency in a paper. Jurrien Timmer, director of global macro at Fidelity, states in the paper “Understanding bitcoin” (see attachment) that more and more professional investors see the currency as a legitimate asset class. ‘It looks like a stable store of value and provides protection against hyperinflation. But the risks of volatility, substitutes and regulation are high. In short, in a 60/40 portfolio, the currency can be a component of the bond portion of the portfolio for some and not for others,’ says Timmer. Bitcoin lost more than 8% of its value last week. On Saturday, it was trading at roughly $54,000.