In the early years, ardent supporters of cryptocurrencies liked the fact that they were free of government intervention. Others liked that cryptocurrency was insulated from inflation caused by government actions; this was particularly appealing to developing nations with high historical inflation rates. Still others liked the pseudonymity of cryptocurrency transactions – an added layer of secrecy beyond that offered by the traditional banking system. This, however, drew attention from regulators. Though surprising to some, all cryptocurrency transactions require, and benefit from, excellent recordkeeping, which is maintained on unique blocks of a public blockchain. Many more, primarily speculative investors, are simply excited by the extreme price appreciation, leading to more than just tech-minded investors entering the space; this remains true today.
2020–2021 Development and Beyond
Price appreciation has been impressive. Since its March 2020 low of $5k, Bitcoin rose to a high of $65k in April 2021 and at a current price of $62k is attempting to retest the peak.1 Other cryptos have seen similar appreciation. An options on futures market was created for Bitcoin in 2020, after the initial Bitcoin futures launch in 2017, allowing for synthetic exposure to Bitcoin’s price movements.2 Some institutional investors have added Bitcoin allocations to their portfolios, while many others are considering such allocations. Some large corporations have bought Bitcoin with balance sheet assets, including PayPal, Tesla, Square, MassMutual, and MicroStrategy; while their reasoning may vary, they all agree that Bitcoin is a worthwhile investment.
While cryptocurrency mining stocks have exploded in value, until recently mining was the only way registered funds could access cryptocurrency exposure, as most registered funds are not permitted to own pure Bitcoin. Coinbase, a large cryptocurrency exchange and wallet provider (similar to a brokerage account for crypto), went public with great fanfare in April 2021. Established cryptocurrency companies like Coinbase welcome government regulation and clarification on tax requirements, as this action will enhance cryptocurrency’s credibility.
As investors, merchants, and governments assess the benefits of Bitcoin and other cryptocurrencies, we’ll gain a better sense of how significant cryptocurrencies will be going forward. Many investors claim that cryptocurrencies have come too far not to significantly impact the future of investing and the exchange of goods and services. As a result, we are seeing many retail and institutional investors making modest investments in cryptocurrency to gain exposure, learn about this alternative asset class, and mitigate the risk of not owning any.
2 Bitcoin futures enable investors to gain exposure to Bitcoin (BTCUSD) without having to hold the underlying cryptocurrency.
All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.
Cryptocurrencies are subject to numerous market risks, they are speculative and volatile, can become illiquid at any time, and are for investors who can tolerate the full loss of their investment.
Diversification does not guarantee a profit or protect against a loss.
The views and opinions expressed may change based on market and other conditions. This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary.
This material may not be redistributed, published, or reproduced, in whole or in part. Although Natixis Investment Managers believes the information provided in this material to be reliable, including that from third party sources, it does not guarantee the accuracy, adequacy or completeness of such information.