The recent volatility in bitcoin prices set of by Tesla’s Founder, Elon Musk has caused new doubts among institutional fund managers over the future of cryptocurrencies as an asset class. UBS Wealth Management, Pimco, T Rowe Price and Glenmede Investment Management were among the firms that have showed their concern in recent days about the potential of cryptocurrency investments.
The upheaval came after Tesla said it would no longer accept payment in bitcoin for its electric vehicles owing to environmental concerns, and Musk referred to dogecoin as a joke, a rival cryptocurrency, as a “hustle” during an appearance on the Saturday Night Live television show.
Highlighting the extreme volatility, bitcoin traded at just above $44,000 on Monday, down about $20,000 from the record high it hit just a month ago. The latest din was sparked by Musk seeming to imply on Twitter that Tesla has or will sell the stake it has gathered in bitcoin. He later clarified that the automaker “has not sold any bitcoin”.
Definitly, bitcoin has optained ground with investors in recent years and trading in futures contracts has become more liquid. US regulators are also considering whether to approve crypto exchange traded funds.
But asset managers say they are troubled by signs that cryptocurrencies are failing to live up to expectations that they would become less volatile over time or suggest investors hedges against equity turbulence or inflation.
“The volatility of crypto is stratospherically high and we often see this happens, when equities sell off, so does bitcoin and this shows it is not a good portfolio diversifier,” Pride said.
Nicholas Johnson, portfolio manager for commodities at Pimco, took issue with bitcoin advocates who pointed it as an inflation haven after cryptocurrencies rallied while gold fell in price.
“This idea that crypto is an inflation asset is curious,” he said. “Inflation assets under performed in recent years while cryptocurrencies did very well. People are looking for a reason to justify why crypto has gone up.”
The Division of Investment Management at the Securities and Exchange Commission expresed : “Investment in the bitcoin futures market should be pursued only by mutual funds with appropriate strategies that support this type of investment and full disclosure of material risks.”
Cryptocurrency anxieties were further aggravated this week when a leading US regulator warned investors that buying mutual funds with vulnerability to bitcoin futures “is a highly suppositional investment” and alerted mutual funds that it would be exposing their participation with the cryptocurrency to extreme scrutiny.