Tuesday, February 27, 2018

Cryptocurrency reserved for "investors able to endure a total loss of their bet" :


As the world's largest asset manager, the American BlackRock keeps an eye on cryptocurrencies. Inevitable, since this new "asset class" weighs 500 billion dollars. But at this stage, they are still far from establishing themselves in the traditional investment portfolios, underlines the French Isabelle Mateos y Lago, specialist of diversified management and general manager within the BlackRock Investment Institute. The cocktail of high volatility, fragmentation, operational risks, liquidity risks, security risks and minimalist regulation has indeed put off the management that is well established.

The mere volatility of "cryptos" would be enough to scare a traditional investor. BlackRock has compiled annualized daily volatility data for traditional asset classes over the period from January 1, 2016 to February 21, 2018. US equities (S & P500) and gold (spot prices) do not exceed 15%. The bitcoin approaches 80%, the ethereum exceeds 145% and the ripple hangs the zone of 170 to 180%. And this only affects the three most common cryptocurrency, while there are more than 1,500 traded on some 400 online platforms worldwide. In addition, explains Isabelle Mateos y Lago, they do not appear in any centralized order book and their valuation is complex, in the absence of cash flow, profits or interest rates. But the market is changing, says the former IMF member. The evidence, renowned platforms have started to launch futures on bitcoin. Their success is mixed, in particular because of restrictive margins (and probably also cryptos purge shortly after their launch), but they arouse interest. The strategist believes that a regulatory framework could be put in place, since the G20 has listed cryptocurrencies on the agenda of its next meeting in March.

Blockchain seduces
If caution prevails over Bitcoin et al., The underlying technology, blockchain, is beginning to gain consensus among both business and political leaders. The blockchain, or technology of distributed registers, makes it possible to secure transactions between individuals. In other words no intermediary, but no reliable centralized authority, adds Isabelle Mateos y Lago. Many sectors are interested, but important limitations remain. In the financial sector, a single database of shared financial data would eliminate inefficient practices and risks associated with human intervention. But its large-scale adoption would require huge changes in software development and a very well-designed maintenance model, according to BlackRock's strategist, and probably also the intervention of regulators and central banks. In the end, if the use of cryptocurrency is expected to develop, it is still too early to integrate them into traditional management. Only investors able to endure a total loss of their bet should consider such an investment, judge Isabelle Mateos y Lago.
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