The global crisis and recent turbulence in financial markets have led many investors to consider whether cryptocurrencies like Bitcoin are a suitable investment. A Japanese analyst has predicted strong institutional demand for Bitcoin after the coronavirus crisis and outlined three main reasons why the cryptocurrency could be an attractive addition to portfolios.
The Covid-19 pandemic triggered an unprecedented economic shock, with the IMF calling it the worst recession since the Great Depression. Companies have missed earnings estimates, and many traditional investments have suffered broad-based losses. This environment has driven investors to seek safer or differently behaved assets, prompting renewed questions about whether cryptocurrencies such as Bitcoin represent a viable investment option.
Tetsuyuki Oishi, CEO of Bitcoin Lab and a crypto analyst at the Japanese financial firm Fisco, shared three reasons earlier this week for expecting significant institutional interest in cryptocurrencies after the pandemic.
First, Oishi argued that equity markets may lose appeal following the coronavirus crisis as demand for many companies’ products declines, potentially causing longer-term profit deterioration. He noted that a V-shaped recovery in stock prices appears unlikely, meaning investors may need to look beyond equities. Holding everything in cash is not a practical solution, he added, so alternative assets will attract attention.
“The prevailing consensus is that a V-shaped recovery of stock prices is unlikely. Therefore, investors must search for alternatives to equities. They can’t simply keep everything in cash.”
Second, the analyst highlighted that cryptocurrencies still show relatively low correlation with traditional assets. While all assets were sold off during the market crash—including gold and Bitcoin—both recovered afterward. That recovery creates room for including assets that exhibit little correlation with an uncertain future economic landscape.
“There is more scope to include assets that are barely correlated with the uncertain society ahead,” Oishi explained. “Among these uncorrelated assets, the one that most investors have not yet incorporated into their portfolios is cryptocurrency, especially BTC.”
Oishi pointed to data from Grayscale Investments’ Q1 2020 report as evidence of growing interest. The report showed $503.7 million in capital inflows to cryptocurrency investment products during the quarter—the largest amount on record—of which $388.9 million flowed into the Grayscale Bitcoin Trust. Institutional investors accounted for 88% of the quarter’s inflows. Oishi viewed this as a positive sign that investor interest in digital currencies has not waned and concluded that institutional demand for cryptocurrencies is likely to persist after the coronavirus crisis.
Even before the coronavirus outbreak and its economic fallout, many financial professionals had recommended allocating some portion of investment portfolios to cryptocurrencies. For example, a February report from JPMorgan noted that the crypto market is maturing and institutional participation in cryptocurrency trading has become significant. The bank suggested that, as bonds may lose some of their ability to hedge equity portfolios in coming years, less conventional hedges—such as the yen and gold—should be considered for long-term protection.
“Cryptocurrencies should also be added to that list … because they uniquely hedge a previously unseen environment characterized by a simultaneous loss of confidence in the domestic currency and its payment system.”
Various prominent financial figures have recommended including Bitcoin in portfolios. Robert Kiyosaki, author of Rich Dad Poor Dad, has repeatedly warned that the dollar is weakening and urged people to invest stimulus checks in Bitcoin. Chamath Palihapitiya, chairman of Virgin Galactic, has long advocated allocating at least 1% of a portfolio to Bitcoin. Mike Novogratz, chairman of Galaxy Digital, has also argued that extensive central bank money printing makes this an attractive time to buy Bitcoin.
As investors reassess their strategies in light of prolonged economic uncertainty, Bitcoin and other cryptocurrencies are increasingly being evaluated not only for their growth potential but also for their role as alternative, low-correlation assets within diversified portfolios. Whether institutions will continue to increase their crypto exposure remains to be seen, but trends observed during the pandemic suggest that interest is growing.
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