For the past year traditional investors have been debating whether to add cryptocurrencies to their portfolios, but Inigo Fraser-Jenkins, a Bernstein analyst, warns against being drawn in by the fear of missing out, Barron’s writes.
What Prevents Cryptocurrencies From Being a Viable Investment?
Blockchain is a promising technology that could affect “many sectors of the economy”, but cryptocurrencies’ role in portfolio allocation is limited—and neither technology is crucial for a portfolio, Fraser-Jenkins tells the publication. He argues that bitcoin has a “tiny” value of just $200 billion compared to that of global equities, which is $70 trillion, Barron’s writes.
Furthermore, Fraser-Jenkins believes that bitcoin’s volatility means it would need a return of 5% a month to be viable, according to the publication. While this was easily achieved in 2017, when it rose 1,300%, it wasn’t so far this year, with a drop of 30% as of the third week of January, Fraser-Jenkins tells the publication.
Moreover, due to the power consumed when bitcoin-mining—using computers to keep the electronic ledger—it is unlikely “that any pension fund which has stated an [Environmental, Social And Governance] goal… would be able to allocate to bitcoin," Fraser-Jenkins tells Barron’s. And this power consumption could prove problematic by attracting regulators’ scrutiny, the publication writes.
