Bitcoin recently climbed above the $125,000 threshold. This tremendously important milestone is emblematic of its arrival into the world of mainstream finance. At time of writing, Bitcoin is trading hands at just over $121,508, an incredible increase in value and a sign of investors returning to the original cryptocurrency. The U.K. government’s decision removes its long-standing prohibition on retail investors from accessing ETNs backed by crypto. This amendment now permits UK-based investors to hold digital assets within their stocks and shares Individual Savings Accounts (ISAs). This means that investors can put up to £20,000 ($26,753) each year into these accounts—on which they don’t have to pay taxes.
With each ramp up in Bitcoin’s price, we see the growing interest and investment from traditional financial institutions and individuals alike. Morgan Stanley is on the verge of offering crypto trading through its E-Trade division, while JPMorgan plans to enter the stablecoin market despite CEO Jamie Dimon’s vocal criticism of cryptocurrencies. These developments all point to the fact that large financial institutions are starting to recognize that digital assets are becoming inescapably important.
“The hands holding bitcoin have become stronger, more institutional, and more patient,” said Nigel Green, CEO of financial consultancy DeVere Group. He emphasized that “investors are no longer treating bitcoin as a curiosity at the edge of the market.” This change points to an increased willingness to view Bitcoin as an acceptable and worthy investment in its own right.
While it has made early investors very rich, many of the world’s major financial institutions remain on the sidelines. Hargreaves Lansdown, the U.K.’s largest investment platform, is raising a major red flag. To this end, they warn potential investors seeking to profit under the promise of looser crypto regulations. We still cautioned people to think about the fact that there are risks involved with every cryptocurrency, even Bitcoin.
“The HL Investment view is that bitcoin is not an asset class, and we do not think cryptocurrency has characteristics that mean it should be included in portfolios for growth or income and shouldn’t be relied upon to help clients meet their financial goals,” – Hargreaves Lansdowne.
This warning is especially timely considering the unprecedented volatility that has marked the recent cryptocurrency market. In 2022, a “crypto winter” caused investors to lose an estimated $2 trillion as the speculative digital asset market faced massive crashes. Supporters of Bitcoin maintain that the volatility we see today is actually a sign of a marketplace maturing. Green noted that “volatility still exists, but it is now productive volatility, the kind that accompanies price discovery in a maturing market.”
This time, Bitcoin’s recent performance is an outlier. It has a negative correlation with traditional assets such as stocks, U.S. Treasuries and gold. Chris Mellor highlighted this aspect, pointing out that “in recent months we have observed that bitcoin has displayed a very low correlation with stocks, U.S. Treasuries and gold.” This would likely increase the attractiveness of Bitcoin as a diversifying asset to investors that are looking for more diversified portfolios.
Mellor emphasized Bitcoin’s increasing acceptance, pointing out that some people now call it “digital gold.” This leads to some interesting speculations about its capability to usurp gold as the number one non-fiat asset.
Overall, Bitcoin is generating unprecedented levels of attention from institutional and retail investors alike. This newfound interest will only further influence CBDC’s role in the future financial landscape. Recent events in the U.K. may make significant cryptocurrency adoption more palatable. At the same time, financial behemoths like Morgan Stanley and JPMorgan are indicating that a revolution is occurring in traditional banking’s acceptance of digital assets.