Bitcoin may have surged a staggering 700 per cent since the start of the year but most investors at a summit said they had not been tempted to play the volatile cryptocurrency. The difficulty of assigning a fair value to a speculative instrument that is less than a decade old and lacks the fundamentals that drive other asset classes was the main reason for steering clear of bitcoin, investors speaking at the Global Investment 2018 Outlook Summit said.
Others said the cryptocurrency’s use for criminal purposes such as money laundering was another reason to stay away, as was the widespread perception that the bitcoin rally was another bubble destined to burst.
“Can you live without bitcoins? Yes. Could you live without tulips in the Netherlands? Yes,” Sankaran Naren, CIO of ICICI Prudential Asset Management Company, said at a summit in Mumbai, referring to the tulip mania bubble in the Netherlands in the 17th century.
While a single bitcoin is worth nearly $8,000, Japan Post Bank Chief Investment Officer Katsunori Sago said he believed its fair value was about $100 and it would have to fall to that level before the bank would consider buying it.
The idea that the bitcoin market, which is now worth $130 billion, constituted a bubble was the broad consensus among participants at the investment summit, which took place in London, Mumbai, New York, Singapore and Tokyo.
Bitcoin was created in 2008 as a Web-based cryptocurrency to move money around quickly and anonymously but the market is not yet regulated by any mainstream financial institution.
While scores of digital currency hedge funds have been launched this year, institutional investors worry that bitcoin is too lightly regulated, too volatile and too illiquid to risk investing other people’s money in.
The difficulty in having an idea what bitcoin’s value should be also means that institutional investors are not just staying away from buying the currency, but also staying away from selling, or “shorting”, it.
“Bubbles can go on for much longer, and get much bigger, than anybody ever predicted before they start, and therefore when you’re shorting something you need to be very very careful,” Peter Fitzgerald, head of multi-assets at Aviva Investors, said.
Even the imminent launch of bitcoin futures by the world’s biggest derivatives exchange operator, CME Group Inc, would not be enough to entice most mainstream investors. But it would draw in some. — Reuters
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