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PGIM swerves crypto kryptonite

‘Cryptocurrencies currently offer little benefit to institutional investors and considerable volatility and regulatory risk’


Pete Carvill

Cryptocurrency is a poor choice for long-term investors, says a new report from PGIM.

The 38-page report, Cryptocurrency Investing: Powerful Diversifier or Portfolio Kryptonite?, spoke to 30 investment professionals across the company’s fixed income, equity, and alternatives managers, along with economists, venture capitalists, and crypto investors. Among its conclusions is that while some cryptocurrencies may survive in the long-term, there is ‘currently no compelling case for direct ownership of cryptocurrencies as a meaningful share of an institutional portfolio’.

A cryptocurrency, writes PGIM, is ‘not quite a currency’.

It goes on: “Money has taken different forms through the ages, from cowry shells to peppercorns and from silver coins to the greenback, but they all share three common characteristics. They act as (1) a store of value, (2) a widely accepted medium of exchange and (3) a unit of account. Unfortunately, no cryptocurrency to date adequately fulfils these three essential functions.

“Bitcoin, the most prominent cryptocurrency, for example, has a notoriously unstable price, is a poor medium of exchange and is rarely used outside the crypto-native digital realm as a unit of account. These fundamental inadequacies are rarely acknowledged by crypto enthusiasts, who often conflate bitcoin’s phenomenal price appreciation with its actual utility as a digital cryptocurrency.”

Its place in an investment portfolio, continued PGIM, is not yet under a ‘definitive verdict’, given the brief period between its inception and ongoing evolution.

However, “[…] our evaluation of the evidence to date strongly suggests that, despite robust valuations and the conviction of ardent crypto enthusiasts, direct investment in Bitcoin or other cryptocurrencies currently offers little benefit to institutional investors and considerable volatility and regulatory risk.”

All this comes against a backdrop in which cryptocurrencies in general tanked at the end of last week, losing around $2trn in value. In the last month, the value of a single Bitcoin in euros has gone from €37,843.35 to €27,932.68. In November last year, it peaked at around €58,323.78 and has since trended steadily downwards.

Meanwhile, the ‘currency’ of Dogecoin (which started off as a joke) has dropped in value per Doge(??) from €0.13 to €0.082. In June last year, it was valued at €0.35. Funny, right?

Meanwhile, Coinbase, which is the site on which people buy and sell crypto, has scaled back its hiring drive and intimated it may raid its own customers’ assets if/when things go south.

As Coingeek put it: “The exchange reported a loss of $430m in Q1 2022 as revenue slipped 27% compared to a year ago, and the stock has now lost 70% of its value since March.”

In fact, wrote author David Gerard for Foreign Policy, the whole thing is reminiscent of 2008 and the great financial crash.

Comparing crypto to the housing crash, he wrote: “The same pattern has just taken place in crypto—except without any asset as solid as housing at the bottom of it. Cryptocurrency traders work entirely in U.S. dollars. Ordinary cryptocurrencies are notoriously volatile—bitcoin regularly goes up or down 10% in a day, making speed crucial.

“So the industry created ‘stablecoins’: blockchain tokens worth precisely one dollar that can be traded as stable dollar-equivalents at the speed of the blockchain, without the need to wait for banks. As an added bonus, stablecoins save their users all that tedious red tape of financial regulation, compliance with anti-money-laundering laws, or being a known and named entity with a bank account.”

Read the whole thing. It’s immense.