For a time, bitcoin became just too big to ignore, with the cryptocurrency reaching all-time highs above $64,000 in April. When the price of an asset increases six-fold in a matter of months people are bound to sit up and take notice.

Amid signs that institutional investors were warming to the cryptocurrency, which also had a prominent and vocal fan in the form of Telsa founder Elon Musk, its entry into the mainstream of investing was looking increasingly assured.

The picture now looks a little different. Recent tweets from Musk, and his U-turn on accepting the cryptocurrency as payment for Tesla cars on environmental concerns, saw bitcoin’s price drop by a third from its highs.

Even if Musk’s subsequent denial that Tesla had divested its recently acquired holdings in bitcoin helped stem the bleeding, the simple fact that an individual tweeting about an asset could lead to such high levels of volatility helps explain why some institutions are publicly questioning bitcoin’s investment credentials.

Ruffer was one of the first big asset managers to reveal it was investing in bitcoin back in November 2020 and it has reportedly begun exiting a position which it largely justified as complementing its holdings in gold.

While bitcoin may have been seen in some quarters as an alternative to the precious metal’s role in protecting against inflation, gold’s credentials in this area are much more long-standing.

LACK OF VISIBILITY

It is still too soon to make definitive judgements on what will happen to bitcoin over the longer term, particularly given the role regulation might have to play. Even apparent fans of bitcoin accept the lack  of visibility. 

Florian Ginez, associate director, quantitative research at WisdomTree, says: ‘As a new asset class, any development that may affect the outlook for adoption can have a sharp impact on price. The future looks bright for cryptocurrencies but deciphering the exact path of adoption is almost impossible.’ 

Blockchain, the infrastructure underpinning bitcoin, could ultimately prove more interesting in the long term. It is a verifiable electronic ledger for recording transactions and tracking assets in a business network, which could be anything from a tract of land to a key piece of intellectual property.

It provides instant and transparent access to information but is encrypted so it can only be accessed by sanctioned members of a network and cannot be modified.

Up until now there have big claims for blockchain’s use in a variety of applications from finance to manufacturing and agriculture but little sign of tangible progress, partly because the process is intensive and expensive.

However, with major corporations like Amazon and JPMorgan recently announcing expanded footprints in this area, progress with blockchain could gather pace over the coming decade.

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