BlackRock Inc. has said that it doesn’t see cryptocurrencies becoming part of mainstream investment portfolios soon; however, it is bullish on the impact the blockchain technology will deliver.
The distributed ledger may offer ‘disruptive potential’ to industries including logistics and pharmaceuticals to financial service, according to Richard Turnill, BlackRock’s global Chief Investment Strategist, in a commentary piece. Yet, he adds that the blockchain would need to overcome obstacles first to reach its ‘promising future.’
Take the financial industry. A blockchain-based, single shared financial database could eliminate inefficiencies and risks associated with human processes, but adoption at scale would require a massive shift in software development and a well-constructed maintenance model. Regulators and central bankers would also need to play a big role, we believe.
He adds that there is an ’emerging consensus among policymakers and business leaders,’ that they remain ‘cautious on bitcoin and bullish on the underlying blockchain technology.’
Notably, however, BlackRock doesn’t place too much confidence on the cryptocurrency market. In his commentary, Turnill compares the yearly daily price volatility of the three biggest digital currencies – bitcoin, ethereum and ripple – with U.S. equities and gold.
The volatility of the cryptocurrencies makes the gyrations in the U.S. equity market during the global financial crisis almost look placid.
Despite this, though, digital currencies are attracting new investors to the market on a daily basis. This is partly due to the dramatic price rises at the end of 2017, which saw bitcoin within touching distance of $20,000 for the first time. Yet, regardless of the interest that the market is attracting, Turnill is of the opinion that they won’t become part of mainstream investment portfolios any time soon, adding:
Crypto markets are highly volatile, fragmented, largely unregulated, and come with unique liquidity and operational risks.
Even though the market is evolving with the exchanges such as CBoE and the CME launching bitcoin futures at the end of 2017, Turnill believes that the reception to these has been lukewarm. Cryptocurrencies also face many hurdles such as weak regulation and security flaws at digital currency exchanges, he adds.
With investors facing the possibility of losing huge sums of money, Turnill finishes by saying:
For now we believe they should only be considered by those who can stomach potentially complete losses.
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