Institutional investors have been putting pressure on cryptocurrencies even before this week.
Institutional investors have been putting pressure on cryptocurrencies even before this week. The sudden collapse of Sam Bankman-Fried’s FTX.com may have permanently damaged their prospects for inclusion in major portfolios.
While there are still plenty of fanatical employers in the industry, many professional money managers say the case for cryptocurrency as a diversification tool for portfolio or digital gold has been debunked. They say the losses are too big and the market structure too risky.
“What is becoming clear is that it will not find a home for institutional asset allocation,” said Hani Reda, multi-asset portfolio manager at Pinebridge Investments in London. “There was a period when the potential asset class that every strategic asset allocation investor should have was considered, and that is completely off the table.”
Tiger Global, SoftBank Staring At New Losses In FTX Bets
The explosions and scandals of the past few months have squandered key arguments for crypto boosters, and quashed the notion that bitcoin is a safe haven in turbulent times. But none of these events – from the collapse of TerraUSD to the bankruptcy of Celsius – were as dire as the revelation that even FTX, until recently considered one of the most excellent names in crypto, was unsound.
The collapse of FTX “raises questions about the viability of the crypto ecosystem,” said Salman Ahmed, chief investment analyst at Fidelity International, which oversees $646 billion from London. “It has always been difficult to make an argument for the inclusion of cryptocurrencies, but the setup has come under more pressure.”
His company launched a product for trading on the Bitcoin exchange in February, targeting professional European investors. It has lost about 55% since its inception.
Just a year ago, cryptocurrency mania was at its peak and Bitcoin had crossed $67,000. In January, Bridgewater estimated that 5% of Bitcoin is owned by institutional investors.
Alarming expectations were everywhere at the time. Nikolaos Panegirzooglu, strategic analyst at JPMorgan Chase & Co. , that Bitcoin could theoretically reach $146,000 in the long-run by crowding out gold. A PWC survey in April found that 42% of crypto hedge funds expected bitcoin to trade between $75,000 and $100,000 by the end of 2022.
Now views among investors are more conservative. In a report this week, Panigirtzoglou said that Bitcoin may reconsider its summer lows of $13,000. Bitcoin traded below $17,000 on Friday.
“The argument for investing in cryptocurrencies as diversification has been around for some time,” he said in an interview.
Bitcoin crashed and recovered before. Some believers see arrogance in the market thrown off, which will eventually set the industry on a path to maturity. FTX issues may already benefit incumbent companies with a track record of managing risk, such as the Nasdaq Stock Exchange and CBOE Global Markets Inc. , wrote Mike Cypress, an analyst at Morgan Stanley.
However, for Mark Dowding, chief investment officer at BlueBay Asset Management, the case for bitcoin to become a version of digital gold is illusory. He said it was only a matter of time until more investors bailed out and cryptocurrency prices fell again.
“It should have been obvious that an industry that produced nothing, burns money and offers attractive returns, is doomed to failure,” he said.
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