The sudden collapse of Sam Bankman-Fried’s FTX has created a situation where institutional investors will not consider having cryptocurrencies in their main asset portfolios in the future.
Though many continue to be diehard fans of cryptos, professional money managers believe that cryptocurrency or digital gold, once considered a portfolio diversifier, is not there anymore. According to them, the market structure of digital assets is too risky, and the losses have been too huge.
No more a Strategic Asset
Pinebridge Investment asset manager Hani Redha says that it is clear now that cryptocurrency will not find a place in asset allocation with institutional investors. Some time back, it was considered a strategic asset, but now it is off the table completely.
The main arguments of crypto boosters and the idea of Bitcoin as a safe backup during turbulent times have been wiped out after several scandals and implosions in the past few months. However, the earlier collapse of TerraUSD and Celsius was not as bad as the revelation of FTX being unstable, which was considered one of the blue chips in the crypto industry.
Fidelity international’s chief investment strategist Salman Ahmed who overlooks assets over $646 billion in London, said that the collapse of FTX.Com raises the question about the viability of the cryptocurrency ecosystem.
In February, Fidelity International launched an exchange-traded fund targeted at European professional investors. The portfolio value has declined by 55% since its inception.
Prediction Goes Haywire
The cryptocurrency craze was at its peak a year ago, and Bitcoin had reached its highest value of $67,000. According to Bridgewater Associates, institutional investors held 5% of the total bitcoin in January. At that time, the predictions were frothy everywhere. J Nikolaos Panigirtzoglou, the strategist at JPMorgan & Chase Co, wrote that Bitcoin could theoretically reach $ 146,000 in the long term after crowding out gold.
A survey by Price Waterhouse Cooper in April found that nearly 42 % of the hedge funds trading in crypto were predicting bitcoin to trade between $75,000 and $100,000 by the year-end.
Now the outlook is more restrained, with Panigirtzoglou saying in a report that Bitcoin could go down to a low of $13,000. On Friday, Bitcoin traded under $16,500. He said in an interview that the argument for crypto investment for portfolio diversification died some time back.
Bitcoin has seen crashes and recovery before. Some believe the hubris in the market will eventually flush out, and the crypto market will be more mature. The crash of FTX will benefit established firms with risk management track records, such as CBOE Global Markets Inc. and Nasdaq Stock Market, according to Morgan Stanley analyst Mike Cyprys.
Chief Investment Officer of BlueBay Asset Management, Mark Dowding, says the idea of Bitcoin becoming a gold digital version is bogus. It is a matter of time before the crypto price plunges again, and the crypto industry produces nothing and only burns cash.
