Cryptocurrency traders are bracing for more turmoil after a market meltdown claimed more than a thousand jobs and put the industry on the brink of a so called ‘crypto winter’ when trading is expected to be sluggish. Investors were left hoping for some respite after bitcoin fell last month to lows not seen since 2020.
The asset management arm of the UK-listed insurer, Aviva Investors, is keeping a close watch on bitcoin and other digital assets for potential spillover risks into other asset classes, as the market braces for a difficult winter. Among the concerns is how a prolonged crpto downturn could hit some institutions that have gained exposure to the market, such as banks.
A portfolio manager within the multi-asset team at Aviva Investors, Guillaume Paillat, said: “Traditional banks have become more involved in crypto. If there are some desks that start to show negative numbers, that’s when it impacts investors like us – it impacts companies for whom it is not necessarily the main activity.” The comments came as crptocurrencies including bitcoin tumble – investors were concerned by inflation gains and a move by crypto lender Celsius Network to halt withdrawals. Bitcoin’s price fell to around $21,000 – down 30 per cent since 9 June with a decline of about 70 per cent from its peak in November.
“We’ve had some internal deepdives to try to understand the space, with experts from the sellside who have been active in setting up desks. We are definitely not invested or looking to invest in bitcoin,” said Paillat. “But it is growing as an important component in the economy. We need to look at it in terms of implications for other asset classes.” The absence of any regulatory framework seeing the crypto market is among the reasons the £268bn asset manager has shunned bitcoin. Its volatility and the fact it doesn’t generate any income, also make it less attractive to include in portfolios, said Paillat.
“The volatility we have seen in bitcoin, given the size of the crypto market, could have implications for more asset classes because of a spillover effect. Bitcoin is not behaving like the digital gold everyone was hoping it would. As it grows, it is something we need to monitor.” The latest sharp drop for the world’s most popular digital asset follows a huge crypto rout in May, prompted by the collapse of stablecoins terraUSD and luna, which wiped out around $60bn. The value of the global cryptocurrency market has dropped from almost $3tn in mid-November last year to around $916bn, according to figures from CoinMarketCap.
The latest sell-off has already had a knock-on impact on some big names involved in the crypto sector. Crypto exchange Coinbase, announced plans on 14 June to cut almost 20 per cent of its roughly 5000-strong workforce, with CEO Brian Armstrong citing the harsh economic conditions and the fact the company grew “too quickly” during the crypto bull run of 2021.
Meanwhile, Gemini, another crypto exchange, said earlier in May that it would cut 10 per cent of its workforce before the most recent market rout. The company’s billionaire founders Cameron and Tyler Winklevoss said the industry had entered a prolonged period where trading remains flat after a significant market fall. Despite the scepticism from Aviva Investors there is evidence that institutional investors want access to crypto.
According to study of 105 professional investors by Grayscale Investments, the world’s largest digital currency asset manager, respondents predicted institutions will replace retail investors as the main holders of digital assets. Those responding to the poll included fund managers, wealth managers and pension funds, with more than $182bn in assets under management.
Andy Jalil
andyjalil@aol.com
The writer is our foreign correspondent based in the UK
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