China and Elon Musk are getting bearish on crypto as Wall Street is increasingly adding related offerings – all while Bitcoin saw 30 percent of its value erased in the last week. finews.asia reviews banks’ latest views on the emerging asset class.
After peaking at over $63,000 in mid-April, Bitcoin has seen its value plunge by over 40 percent to below $40,000, the lowest level reached since early February. Other cryptocurrencies in the broader market, like Ethereum, also suffered from the major selloff.
Technical drivers aside, cryptocurrencies have also faced a series of negative headlines including Elon Musk’s comments about excessive energy consumption from mining alongside China’s latest crackdown which included new bans against mainland financial institutions from engaging in crypto acceptance, payment, settlement, exchange and more.
Still, global financial institutions – most notably Wall Street giants – continue to add new offerings to cater to cryptocurrency demand. So, what say the banks?
UBS
Although UBS is mulling a launch its own crypto offering, it underlined a flurry of risks and challenges for the emerging digital asset class including high price volatility, potential impact from regulatory control, carbon emissions from energy consumption and criminal use for money laundering or tax evasion.
«The portfolio benefits of holding cryptos are limited, in our view,» said UBS Global Wealth Management in a recent investment note.
«The best portfolio case that can be made for cryptos is as a diversifier, given a low correlation to conventional assets. However, correlation with risk assets has increased, and diversification alone is not a sufficient reason to add cryptos to a portfolio, in our view. Investors also need to look at risk-adjusted returns to determine whether they are sufficiently compensated for the risk they are taking.»
Wells Fargo
While Wells Fargo also reiterated some of the oft-cited risks – tightening regulations, high energy consumption and high price volatility – it believes that there is now a case for serious crypto investing due to its low long-term (5-year and 10-year) correlation with traditional asset classes.
«Cryptocurrencies, in our view, have evolved into a valid consideration as a portfolio option for qualified investors,» according to a new report titled «The investment rationale for cryptocurrencies» by the Wells Fargo Investment Institute. «The pandemic also appears to be playing a temporary role in stronger correlations between cryptocurrencies and equities. However […] the high correlation is unlikely to persist.»
Wells Fargo is also the latest Wall Street player to join the wave after it announced yesterday that it was set to introduce an actively managed cryptocurrency strategy for its wealthy clients.
J.P. Morgan
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