It’s not an asset class.
This uninformed opinion is amply refuted by the marketplace. Besides, isn’t that just a tomato-tomahto comment? Who cares whether it’s called an asset class, a market sector, an investment or a speculation?
There’s no inherent source of expected returns, no cashflows like a bond, no direct exposure to economic growth or to future earnings from the economy, and no inherent source of value beyond the supply and demand.
The same concerns can be made about gold. Instead of complaining that digital assets don’t act like other assets, why not consider digital assets for the attributes they do have – not least of which is considerable adoption in the corporate, regulatory and investment communities.
Most institutional investors are not buy-and-hold investors; they are attracted by the high volatility of the markets and ability to speculate on future price moves. This implies that cryptocurrencies are not a suitable investment for long-term investors.
In fact, there is no evidence that most institutional investors are active traders. Furthermore, a great many institutional investors also actively trade stocks and bonds. Finally, as evidenced by the stock market, the presence of short-term traders does not cause problems for long-term investors. The leap of logic in this objection is hard to fathom.
The volatility of digital assets is extremely high.
To everyday investors, the volatility of the stock market also appears extremely high. It depends what you’re comparing it to. Also, as with the stock market, high volatility occurs only in short periods (in the case of digital assets, as short as hours or a day). As with the stock market, volatility in Digital asset prices smooth out over longer periods. Finally, as with the stock market, volatility is not a reason to avoid investing; you invest despite (not because of) volatility.
Let’s keep in mind that no one objects to upside volatility, and as with the stock market, most of the volatility in digital assets has been toward the upside.
Digital assets do not have stable correlations with other financial assets, which makes it difficult to use them as diversification tools in a portfolio.
This is flatly incorrect. Digital assets have demonstrated highly consistent data. As shown in this report, digital assets are non-correlated to all other markets – making digital assets a perfect diversification tool for portfolio construction.
Digital assets have experienced many cases of market manipulation and fraud. The market is immature, opaque, and barely regulated, creating a new level of risk for unsophisticated investors.
Although this was true in bitcoin’s early years, this claim is now an outdated assertion. In recent years, highly regulated, audited and verified trading and custodial platforms have emerged; investors now have reliable ability to trade and own bitcoin with confidence.
Instead of relying on unsubstantiated presumptions, investigate this asset class – and decide for yourself. The RIA Digital Assets Council is devoted to providing you the information you need to help you serve your clients’ best interests.