Institutional investors are increasingly disillusioned with digital assets. The sudden collapse of crypto exchange FTX may have completely undermined the prospects for cryptocurrencies to be included in the portfolios of major investors.
While there are still enough crypto enthusiasts in the industry, many professional investors say the case for cryptocurrencies as a portfolio diversification tool or digital gold has been debunked. In their opinion, investing in cryptocurrencies is associated with the probability of too large losses, and the market structure itself is too risky.
“It became clear that there would be no place for cryptocurrencies in institutional asset allocation. There was a time when they were viewed as a potential asset class that every investor should have in their strategic asset allocation, but that’s completely out of the question now.”said Hani Redha, portfolio manager at London-based Pinebridge Investments.
Recent scandals in the cryptocurrency market have all but wiped out the notion of bitcoin as a reliable investment option. However, no recent event, be it the collapse of cryptocurrency Terra or the bankruptcy of cryptocurrency lender Celsius, has been as devastating to the industry as the news that even a serious player like crypto exchange FTX could default.
“FTX collapse raises doubts about the viability of the cryptocurrency ecosystem”said Salman Ahmed, chief investment strategist at Fidelity International, which manages $646 billion in assets.
When Bitcoin’s price surged above $67,000 per coin a year ago, some investors and analysts predicted continued stable growth. There have been predictions that the bitcoin exchange rate should be in the range of $75,000 to $100,000 by the end of this year, now investors have become more cautious in their estimates and bitcoin was trading at $16,656 per coin at the time of this writing.
Note that Bitcoin has historically managed to weather tough times, and some investors believe the cryptocurrency market is stabilizing. However, Mark Dawding, investment director at BlueBay Asset Management, believes the arguments about Bitcoin’s ability to become a digital analog of gold are untrue. “It should be clear that an industry that produces nothing, burns money and offers tempting returns is doomed”Dowding is safe.