Alliance Bernstein is a global investment manager with 631 billion in assets. The research arm of that firm just produced a new note for clients. The firm had previously ruled out bitcoin as an investment in January 2018.
However, Inigo Frazer Jenkins, the new note of co-head of the portfolio strategy team at Bernstein Research, has some notions. He states that he has changed his mind about bitcoin’s asset allocation role.
According to him, the policy environment, debt levels, and diversification levels for investors post the pandemic have changed.
Crypto Market Evolvement
Since when they declared that bitcoin had no role in asset allocation three years ago, there has been a market change. However, now, the pandemic possesses some profound questions for cryptocurrency and potentially transforms it.
Aspects of crypto:
This note is about two related aspects of crypto:
- The role of crypto and asset allocation
- Its potential as a medium of exchange affects the ability to implement policy.
This aspect is bound up in governments’ questions and power and likely larger role in economies post-covid. Which, in turn, has massive implications for asset allocation. It is relatively easy to create a narrative of why cryptos’ demand might increase, given the economic status quo post-covid.
A counteracting force is a limit on supply, but a multitude of cryptos have been created. In theory, the total crypto supply is unlimited.
However, in this respect, they are like fiat currencies. In practice, investments only use small numbers; thus, at any time, the supply of cryptos could be limited for practical purposes. Though, the exact enumeration of which cryptos are on that list will vary over time.
The role of cryptos in asset allocation inevitably leads to a discussion of what money is. In this light of pandemic acts as both new forces for and against cryptos. On the positive side, there will likely be increased demand as a result of fiscal expansion.
The likelihood of inflation increased taxes, and the change in the debate whereby MMT related policies are increasingly discussed. In other words, the more significant role that governments play in economies makes cryptos potentially more appealing. On the other hand, these very forces also may hinder cryptos if they get in the way of policy implementation.
In conclusion, Fraser-Jenkins gives investors advice to add a small amount of bitcoin to their portfolios. Because besides stated reasons, bitcoin’s volatility has dropped remarkably over the last three years.
Very good article. I will be going through a few of these issues as well..