As banks and asset managers increasingly allocate capital to the crypto arena, PGIM reiterates its view on why cryptocurrencies are an unsuitable asset for investor portfolios.
Shehriyar Antia, head of thematic research at PGIM, comments: “Despite ongoing scepticism surrounding cryptocurrency, a number of traditional financial institutions have been making large investments into crypto in recent weeks. Based on the evidence to date, we at PGIM continue to view cryptocurrency as more of a speculation that is not yet suitable for long-term investment or fiduciary institutional portfolios.
“To include any asset class in our client portfolios, we need to be convinced of three factors: it requires a clear regulatory framework, it must be an effective store of value, and it needs to have a predictable correlation with other asset classes. Cryptocurrency does not meet one of these three criteria currently.
“While cryptocurrency is a heroic quest to build a viable, decentralised peer-to-peer payment system, which will have attractive spin-off benefits through blockchains, its pricing is based on speculative behaviour, rather than a fundamental thesis around its value or utility. Furthermore our research shows cryptocurrency is an unreliable portfolio diversifier and an inadequate safe-haven asset or inflation hedge. Recent risk-adjusted returns are not much different than other asset classes but with more frequent and greater drawdowns.
“The unsettled regulatory backdrop and the significant ESG concerns – not just around climate but also around governance – pose additional headwinds for long-term investors and further demonstrates why we see no reason for cryptocurrencies to be a part of institutional portfolios.”
