In an era where arguably even normally dependable gilts have shifted from being ‘risk-free returns’ to ‘return-free risks’, have cryptocurrencies such as Bitcoin finally become viable assets? Or has recent market turbulence, coupled with regulatory intervention, put a stop to treasury interest in this space? We explore the options – and take a pragmatic view.
Cash is king. Cash is dead. They can’t both be right. The ‘cash dead’ school of thought is often based on the belief that a digital asset, most commonly Bitcoin, is the best alternative. The investment potential of Bitcoin is well known and often characterised as a rollercoaster ride. In recent months it has certainly attracted attention, not all good.
Up to the end of April 2021, Bitcoin received investment flows of $3.7bn, according to CoinShares. Its appeal appeared to be widening. With huge allocations by high-profile firms such as MicroStrategy, Tesla and Square, which together have bought $3.9bn worth, Bitcoin seemed to be coming of age in early 2021 – even if its most notable proponents were cash-rich tech firms with visionary founders holding relatively high percentages of board control.
Nevertheless, Bitcoin – and other cryptocurrencies – are subject to unexpected market pressure. A prime example of this is the move by Chinese regulators in mid-May 2021 (the time of writing) to ban financial institutions and payment providers from offering services related to cryptocurrency transactions. Investors in China were also warned against speculative crypto trading. Understandably, this news caused the value of Bitcoin to plummet and the currency has lost approximately half of its value in just 30 days.