The latest crypto collapse – in large part driven by poor design of so-called stablecoin UST – highlights why cryptocurrency is a poor choice for long-term investors, according to heavyweight investor PGIM.
The $1.4 trillion global investment management business of Prudential Financial, PGIM said dozens of its investment professionals across fixed income, equity, real estate, private debt and alternatives businesses have come to the conclusion that direct investment in cryptocurrencies offers little benefit to an institutional investor while adding considerable volatility and risk.
“As long-term investors and fiduciaries on behalf of our clients, three things need to be true for us to add an asset class into a portfolio: the asset needs a clear regulatory framework, it needs to be an effective store of value, and it needs to have a predictable correlation with other asset classes,” said PGIM CEO David Hunt.
“Cryptocurrency currently meets none of these three criteria. It’s much more of a speculation than an investment.”
PGIM’s latest ‘Megatrends’ research claims that cryptocurrency is an unreliable portfolio diversifier and an inadequate safe-haven asset or inflation hedge. It said recent risk-adjusted returns are not much different than other asset classes but with more frequent and greater drawdowns.
Furthermore, the unsettled regulatory backdrop and the significant environmental, social and governance concerns pose significant additional headwinds for long-term investors.
“Cryptocurrency may be a heroic quest to build a viable, decentralised peer-to-peer payment system, but its pricing is based on speculative behaviour, rather than a fundamental thesis around its value or utility,” said PGIM head of thematic research Shehriyar Antia.
“Furthermore, with little evidence to support it as an effective inflation hedge or safe-haven asset, we see no reason for cryptocurrencies to be a part of institutional portfolios.”
PGIM says cryptocurrency is not an effective hedge against inflation: in 2021, the price of Bitcoin and other cryptocurrencies moved with inflation only for a brief time before falling sharply, while gold has demonstrated since the 1970s that it can be an effective and reliable inflation hedge.
It added that Bitcoin does not function as a safe-haven asset: the most prevalent cryptocurrency was not a steadying force in early 2020 when global asset prices spiralled downward due to worldwide COVID-induced shutdowns. It held far less of its value than conventional safe-haven assets.
Cryptocurrencies also clash with ESG objectives, said PGIM, as a single transaction on the bitcoin blockchain is equivalent to 2 million transactions on the Visa network, or roughly the same energy needed to power the average American home for over two months.
“Cryptocurrency gets all the breathless hype, but it’s the underlying technology where we find the most interesting investment opportunities,” said Taimur Hyat, chief operating officer for PGIM.
“Firms that enable real-world blockchain applications like clearing and settling transactions, preventing fraud, and tokenising real assets offer significantly greater creation of value over the next decade. The old axiom applies – when there’s a gold rush, invest in shovels and pickaxes.”
a16z launches $600m Web3 games fund
Investment giant Andreessen Horowitz – also known as a16z – has launched a $600m fund dedicated to Web3 games.
GAMES FUND ONE is founded on a16z’s belief that games will play a pivotal role in defining how we socialise, play and work over the next century. It says the most successful games today – such as Fortnite, League of Legends and Minecraft – are communities that retain loyal, long-term users and generate billions of dollars in annual revenue.
Games are also driving innovation across the entire consumer ecosystem, pioneering mechanisms for user engagement, retention and monetisation, such as microtransactions, battle passes and Web3 tokens.
“Long term, we believe games infrastructure and technologies will be key building blocks of the Metaverse, an opportunity that dwarfs the current $300 billion game industry itself,” said the VC.
Singapore-based crypto wallet BitKeep has closed a $15 million Series A funding round to develop a cross-chain decentralised autonomous organisation (DAO) to give ecosystem ownership to wallet users. Dragonfly Capital led the round with participation from KuCoin Ventures, A&T Capital, Foresight Ventures, SevenX, Matrixpor, Bixin Capital, Danhua Capital, Peak Capital and YM Capital. BitKeep’s multi-chain wallet has more than 150,000 daily active users and supports Ethereum, Solana, BNB Chain and Polkadot, among other blockchains.
Cryptocurrency exchange Coinbase has created a ‘crypto native think tank’, named Coinbase Institute and led by its director of policy Hermine Wong, to help shape the global conversation around policies for digital assets.
CoinRegTech, a provider of compliance technology to the digital asset and virtual currency marketplace, has revealed investment from BroadPeak Partners, a global leader in low-code data management. BroadPeak will exclusively license its K3 System to CoinRegTech for 20 years.
Elite Token has released a beta version of its gaming platform Runiverse alongside an NFT drop. Runiverse works across the most popular metaverses – Sandbox, Decentraland and Star Atlas – allowing users to bet cryptocurrencies against one another based on their market performance within 30-second periods. Cryptos are represented by NFT skins, ‘Runners’, that race against one another. You can either bet on a given cryptocurrency and get a reward if it wins, or, if you are the holder of a Runner NFT, get a cut of all the races won by the cryptocurrency that your NFT represents.
Move-to earn Web3 running app STEPN has made a monthly commitment of $100,000 towards carbon removal among a range of initiatives to improve the planet.
Russia will legalise crypto payments at some point, according to Minister of Trade and Industry Denis Manturov: “Both the central bank and the government are actively engaged in this. But everyone is inclined to understand that this is a trend of the time, and sooner or later in one format or another, it will be carried out.”
The overall market cap of the almost 19,500 coins is at $1.24 trillion at the time of writing (7am UK), a 3.6% decrease in the last 24 hours.
Market leader Bitcoin – the original cryptocurrency created by the mysterious Satoshi Nakamoto – dropped 3% to around $29,000. BTC is up 8% in a week.
Ethereum, the second most valuable crypto coin – created as a decentralised network for smart contracts on the blockchain – lost 5% to around $1,950. ETH is 7% up over the course of a week.
Binance Coin is a cryptocurrency created by popular crypto exchange Binance to assist its aim in becoming the infrastructure services provider for the entire blockchain ecosystem. Its BNB token fell 2% to $295, leaving it 28% up over seven days.
The XRP token of Ripple, a payment settlement asset exchange and remittance system, acts as a bridge for transfers between other currencies. XRP lost 4% to 41 cents, which leaves it 19% up over seven days.
Cardano is an open source network facilitating dApps which considers itself to be an updated version of Ethereum. Its ADA token, designed to allow owners to participate in the operation of the network, shed 9% to 51 cents. It is 24% up over the course of a week.
Solana is a blockchain built to make decentralised finance accessible on a larger scale – and capable of processing 50,000 transactions per second. Its SOL token fell 9% to below $51 and is up 22% compared with a week ago.
Meme coin DOGE was created as a satire on the hype surrounding cryptocurrencies but is now a major player in the space. DOGE shed 5% to 8.5c, leaving it 18% up in a week.
Polkadot was founded by the Swiss-based Web3 Foundation as an open-source project to develop a decentralised web. Its DOT token, which aims to securely connect blockchains, fell 9% to below $9.60 and is 27% higher than its price a week ago.
Avalanche is a lightning-quick verifiable platform for institutions, enterprises and governments. Its AVAX token dropped 13% to around $29.50 and is 14% up in a week.
To see how the valuations of the main coins have changed in recent times – and for round-ups of recent cryptocurrency news developments – click here.
For valuations of the top 100 coins by market cap in US dollars, plus 24-hour price change, see below.