Investment professionals are being offered a manichaen view of cryptocurrencies from evangelizers and skeptics:
Evangelizer: “Bitcoin’s structure is very ingenious. The paper money disappears, and crypto-currencies are a much better way to transfer values than a piece of paper, that’s for sure.” Elon Musk.
Skeptic: ‘Black Swan’ author Nassim Taleb says bitcoin is worth zero and fails as a currency and a hedge: CNBC.
What should be the allocation to crypto currencies ?
If you believe Economists like Roubini or Hanke, crypto currencies have no place in the portfolios of investors. On the other hand, the Yale endowment has famously increased the allocation to ‘nontraditional asset classes’ to improve diversification and returns – could crypto currencies be a legitimate nontraditional asset class ?
The market capitalization of the cryptocurrency market is estimated to be around $1.9 trillion, still a fraction of Gold ($11.5 trillion) but no longer a rounding error. Gold-bugs have recommended allocating between 2 to 10% of capital on the average pension fund portfolio.
The price of crypto currencies follows the same rules as any other asset: supply and demand. As the new technologies have been spearheaded by computer scientists, a communication chasm between traditionally educated financial analysts and the crypto community has been opened, our goal is to link both pool of experts by presenting the crypto ecosystem from the supply and demand perspective, including financial criteria such as Environmental Social and Governance (ESG) and impact of future Government Regulations.
We approached crypto allocation without a priori biases, bridging the gap (chasm!) left above in the following white paper, the first of a series: