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Photo: Cryptopunks mosaic via larvalabs on Wikimedia. Download the mobile app now, available on iOS and Android. Benzinga does not provide investment advice. All rights reserved. Trade Ideas. News Podcast Events Newsletter. Compare Online Brokers. Top Stocks. Alternative Investing. YouTube Video Podcasts. My Stocks. Posted-In: Cryptocurrency News Markets. This trust allows investors to speculate on BTC without buying it directly. Earlier this year, BlackRock opened two of its funds to investing in bitcoin futures.

Mainstream adoption by financial institutions could be around the corner, with bitcoin becoming an alternative to gold and government bonds. Just like gold is Will crypto become an alternative to gold? Is it worth investing in bitcoin? Like gold , bitcoins are rare and finite. You cannot print more gold, and you cannot print more bitcoins. They cannot, unlike fiat currencies, be debased. Unlike gold, however, which does have a fundamental value as a metal but also as the ultimate currency of central banks, crypto has no fundamental value.

Furthermore, gold, perceived as of great value and rarity since ancient times, has stood the test of time. Cryptos, on the other hand, are very new and to some extent untested, especially during times of crisis. The two assets also diverge in terms of volatility. Gold possesses one-fifth the volatility of bitcoin. Furthermore, the fate of crypto remains highly precarious. Whether these regulations will become outright bans remains unknown.

Just a fortnight ago, US senator Elizabeth Warren compared the crypto industry to shadow banks, and pushed for an outright ban on US banks holding reserves to back private stable coins, the term for cryptocoins that maintain a price relationship with a fiat currency, usually the US dollar. This would no doubt be a death knell for stable coins. Some experts argue the comparison between the rarity of gold and the finite nature of bitcoin is flawed: while one coin may be finite, unlike gold, the supply of cryptos is unlimited.

Lastly, the idea that bitcoin is a good diversifier because of its low correlation rate with other financial instruments, has come under fire. From the period to , while bitcoin was still very much on the fringes, the asset was indeed uncorrelated. Since , however, bitcoin has become much more visibly correlated with several asset classes, most notably stocks and gold. The problem is, because bitcoin has only existed during times of financial prosperity, it has gone up, as equities have also gone up.

This indicates more that investors are increasingly desperate to find yield somewhere. Oliver Renick, an analyst at TD Ameritrade, suggests a much higher correlation exists between macroeconomic phenomena and bitcoin than bitcoin and gold. Why, then, given that over many years, experts and analysts have come out calling cryptocurrency a bubble, a mania, do retail and institutional clients alike come out in droves to cash in?

Looking at the state of the financial markets in general, the idea that crypto is a symptom of a larger problem holds some weight. If the financial markets are the quietly dysfunctional family, crypto has become the naughty child. All the problems of the family are materialised in this one offspring.

The family pretends to itself and to the outside world that the child has emerged out of a vacuum, rather than the dark shadow of the family itself. Extreme overvaluations, staggering price increases, speculative investment behaviour, a long bull market: the current landscape bears many similarities to a bubble.

The London School of Economics professor Robert Wade, in The Coming Financial Crash , discusses the extreme inequality between rich and poor, a phenomenon which has been intensified as a result of the financial crash and, now, the Covid pandemic. Wade says moneyed retail investors, stable during the pandemic and saving money, could pour money into stocks, causing equities to soar to disproportionate prices.

This is a staggering increase when set against the six years between , when there was only an increase of 20 percentage points. Raising interest rates may risk economic crisis, because of the high levels of debt and ballooned equity valuations. However, if stimulus continues and interest rates are not increased, higher levels of inflation could equally result in an economic crisis.

Crypto is not a bubble occurring in vacuum. It is arguably a symptom of a wider problem. From top executive remuneration craziness to the current mania in non-fungible tokens NFTs , to the mania in super yachts, crypto is part of something much larger. Problematically, the extreme complexity of a financial crisis means that crises are almost impossible to predict until they have already occurred. Indeed, the fact people constantly point to crypto as a bubble suggests it is the insignificant distraction we are focusing on as something of much greater impact rears its head outside our line of sight.

So why would they now? Blockchain technology has and likely will continue to promote positive changes across the financial industry. It may even become the building blocks to rebuild the industry should a financial crisis occur. Sadly, crypto as an asset has become appropriated and absorbed into the current system. It has become a symptom of a problem it was attempting to fix.

Perhaps sadder are the crypto believers who have invested in bitcoin in support of the idealist, libertarian, anarchic spirit which drove Satoshi Nakamoto to create the coin in the first place. Will investments from insitutional investors keep pouring in, providing crypto with much needed legitimacy? While current inequality levels are already painful, there is palpable danger that investors, charmed by glossy Tesla headlines and El Salvador gimmicks, will buy into hot air and lose much- needed money as a result of it.

Bonus withdrawal can be a subject to additional commission. By using the Currency. We can recommend Capital. Is Warren Buffett right about cryptocurrencies? Are cryptocurrencies a solid investment or a popular delusion? So where, in all of this, does cryptocurrency locate itself?

Credit: Currency. So, what does this mean for crypto? Wider perspective Extreme overvaluations, staggering price increases, speculative investment behaviour, a long bull market: the current landscape bears many similarities to a bubble.

So what does this have to do with crypto? But what of the future for crypto? Further reading. BTC vs gold: which is better? What is blockchain technology and how does the blockchain work? The material provided on this website is for information purposes only and should not be regarded as investment research or investment advice.

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