As Bitcoin reached $1 trillion in value for the first time, the total market value of cryptocurrencies stood at circa $1.5 trillion. This is about the same size as the market cap of US small cap stocks as represented by the Russell 2000.
Today, the interest in cryptoassets is considerable and, as a result, many institutions are questioning whether an investment in Bitcoin is for them.
This paper provides Mercer's perspective on what we believe are the reasons for the recent rise of Bitcoin. We also examine possible motives for considering purchases of the cryptoasset.
As highlighted in our previous papers, Cryptocurrencies – on the cusp of Mainstream? and Cryptocurrencies – Fool’s Gold or The Future? Mercer does not view cryptocurrencies in their current form as an investable proposition or store of value (either directly, via futures or via hedge funds set up to speculate on cryptocurrency price movements) as they offer no income and assessing fair value is close to impossible.
Mercer sees the risks of cryptocurrencies outweighing their potential benefits and cautions investors against investing in them. Cryptocurrencies may be of interest to certain investors but should be accompanied by risk warnings of sufficient gravity. We believe cryptocurrencies are an order of magnitude riskier than traditional investments. Cryptocurrencies are largely unregulated investments and should be presented as such. Investors wanting to invest in cryptocurrencies should obtain legal advice regarding investment suitability and avoid their use in countries where cryptocurrencies are banned.
In this paper, we update our findings for market and regulatory developments to March 2021 and consider both the strategic and shorter-term trading (tactical) perspective.