Cryptocurrencies are not for everyone. That’s the message from the world's largest asset managers at BlackRock, which has $5.7 trillion in assets under management.
"We see cryptocurrencies potentially becoming more widely used in the future as the markets mature. Yet for now, we believe they should only be considered by those who can stomach potentially complete losses," Richard Turnill, BlackRock's global chief investment strategist, said as reported by CNBC.
Turnill cites the extreme price volatility observed among cryptocurrencies over the past few months as a reason for his warning. He said the extreme volatility observed in the U.S. stock markets during periods of financial crisis looked “placid” compared to crypto's erratic price swings.
Turnill’s concerns hold ground. Recent observations indicate that the virtual currency markets have been unable to shield investors from lurching movements. The most popular cryptocurrency, bitcoin, surged from levels of $900 apiece in January 2017 to almost $20,000 by December 2017, demonstrating a 2,000 percent jump.
However, by February 2018, BTC prices collapsed to lows of around $6,900. It trades at about $10,700 per token as of this writing. (For more, see Why Is Bitcoin's Value So Volatile?)
Lack of Regulation Is Troubling
Turnill also quoted the fragmented market and the regulation-less framework that are a cause of concern for investors looking to reap profits from virtual currency ventures.
With new cryptocurrencies being launched every other day - some on a new blockchain concept and some as a hard fork of an existing successful currency – investors are unable to make informed, timely decisions in the crowded marketplace. Additionally, being a technology-savvy venture in the virtual world, regular people have remained skeptical about venturing into investments in this space, limiting more widespread participation.
The launch of bitcoin derivatives on exchanges like CBOE and CME was expected to bolster bitcoin use and stem volatility. However, crypto trading volumes have remained subdued. (For more, see How To Invest In Bitcoin Exchange Futures.)
Another initiative to launch bitcoin ETF also hit the regulatory hurdles, with the SEC refusing to permit those. (For more, see SEC Blocks Bitcoin ETFs Again; Rejected Winklevoss Bid In 2017.)
Widespread Adaptability Concerns
Turnill believes it is going to be a long road before we see wider adoption of cryptocurrencies in the mainstream.
He suggests a few factors that may help – first, a major shift is required in easing up the software development of the underlying blockchain technology that forms the backbone of the various cryptocurrencies. And second, regulators need to play a pivotal role to support such change and encourage adaptability of the virtual coins.
In the short term, Turnill is hopeful of “a global regulatory framework on cryptocurrencies to emerge, potentially from a G-20 meeting set for March.”
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns no cryptocurrencies.