- Investors recognize the unique investment characteristics of cryptocurrencies
- Institutional investors have started investing in digital assets
- Bitcoin is a reliable store of value
- Cryptocurrency could help investors offset losses if there is a China-U.S. trade war.
Investors are warming up to cryptocurrencies. They smell potential, although uncertainty about their valuations remains. Not only individual investors but big players — such as a pension, hedge funds, financial advisors, family offices, endowment, and foundations — too, are now finding cryptocurrencies alluring. It is the huge surge in bitcoin and altcoin prices in the last couple of years that has induced investors to take a plunge into the crypto world.
In the past, investors were reluctant to invest in cryptocurrencies. It was due to market volatility, no government support, and lack of regulations. Now, investors find digital currencies attractive, and they are eager to invest in them. They have started to recognize the “unique” investment characteristics of digital assets. Also, investors now acknowledge that digital assets provide greater diversification than stock or bond portfolio allocation.
Institutional investors exert considerable influence in the market. Their growing interest in digital currencies is great news for the crypto community. It is an indication that cryptocurrency is the next big thing, and a large quantity of capital is set to flow. Fidelity Investments’ recent survey report confirms the increased entry of institutional investors in cryptocurrency.
The report reveals that many institutional investors are looking to invest in cryptocurrencies in the next five years. It also finds that 22 percent of the institutional investors have already engaged with digital currencies, especially within the past three years. Almost half (47 percent) of those who were surveyed feel that cryptocurrency has a place in their investment portfolio.
“We’ve seen a maturation of interest in digital assets from early adopters, like crypto hedge funds, to traditional institutional investors like family offices and endowments,” Fidelity president Jessop says in a statement.
The economic chaos due to the escalating trade conflict between China and the U.S. is making the investors worry about the potential financial consequences and the decline in the value of their currency. They are looking for a reliable store of value. Gold is one, and Bitcoin, too, has all the required six characteristics, — acceptable, durable, scarce, durable, divisible, and portable — to become the store of value.
The store of value is an asset that is stored for future use. Its value does not depreciate over time, and in the case of Bitcoin, it is likely to increase spectacularly. The digital coin is a highly profitable investment in the long-term. And investors consider it a reliable store of value in their investment portfolio.
There is a growing fear that the China-U.S. trade war would push the global economy toward recession. In August, Reuters reported that the trade war had “brought forward” the next U.S. recession. If the battle between the two countries over trade continued, it would accelerate a global downturn as well.
For the investors, cryptocurrencies could be a potential hedge when the two biggest economies head out to fight a full-blown trade war. With Bitcoin or altcoins as a hedge, investors can offset potential losses.
In its report, titled “Hedging US-China Trade Risk with Bitcoin, Grayscale says, “with continued adoption, Bitcoin represents a transparent, immutable, and global form of liquidity that can provide both wealth preservation and growth opportunities. As a result, we believe it deserves a steady strategic position within many long-term investment portfolios.”
The world is heading toward uncertain times. Grayscale points out that there are “significant shifts” taking place in monetary, fiscal and trade policies across the world. The changes have the potential to impact the global financial markets for a long time. And, no one knows how long the “drawdown” will last. The report states that politicians and policymakers may struggle to manage challenges due to the “complexities of the global financial systems.”
“Bitcoin could be a useful tool in helping investors insulate their portfolios from any failure to manage these problems effectively,” according to Grayscale.
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