(Bloomberg) – Elon Musk helped legitimize cryptocurrencies in the eyes of Wall Street investors. Now, his tweets are scaring.
About a quarter of bitcoin’s value has vanished over the course of a week, thanks in part to Musk’s tweets about everything from bitcoin’s effect on the environment to whether dogecoin is the best digital currency.
Musk has always been ironic about his forays into the crypto world, but his latest posts have sown confusion in the sector and reignited the debate over whether this nascent asset class is a serious investment.
Can bitcoin ever be a hedge against inflation and an alternative to gold with volatility like this? And is it simply a joke on Twitter for the second richest man in the world?
These questions resonate with GAM Holding AG, which manages 124.5 billion Swiss francs ($ 138 billion), as the cryptocurrency’s unpredictable swings are proving to be a major inconvenience.
“Its volatility is so high that it can really distract clients from their investment goals,” said Julian Howard, the firm’s head of asset solutions. “It’s often driven by tweets rather than fundamentals.”
Before this month’s rollercoaster, mainstream crypto adoption had been on the rise, with Tesla’s $ 1.5 billion purchase of bitcoin in February being a watershed moment. At the time, Musk announced that he would allow customers to buy cars with bitcoin and keep a portion of Tesla’s balance sheet in the token.
The move, the first by a large corporation, raised expectations that other corporate treasurers would follow suit and the adoption of cryptocurrencies as a medium of exchange would be consolidated. Goldman Sachs Group Inc. and Morgan Stanley also announced plans to offer their clients exposure to cryptocurrencies.
With the influx of new retail and institutional investors, prices soared from $ 29,000 in January to $ 60,000 last month. After the pullback, the token is now trading around $ 43,000 and some analysts say the market remains precarious, especially as bitcoin’s fate is linked to Musk’s outbursts on Twitter.
“I would definitely expect a reduction in appetite in the future,” said Felix Dian, founder of MVPQ Capital in London, which focuses on cryptocurrencies, and which accounts for 70% of its investors as institutions. “First, due to the loss of momentum from a technical perspective, but also due to extreme sensitivity on environmental issues.”
Because bitcoin has no underlying fundamentals, such as earnings streams or interest payments that help anchor the value of stocks and bonds, it is inherently a speculative bet on market trends in the coming years.
“It’s the latest momentum trade,” said Wayne Wicker, chief investment officer at Vantagepoint Investment Advisers. “Widespread adoption will come from institutional investors over time and regardless of Elon Musk.”
Yet despite all the flashy moves in recent times, bitcoin is far less volatile than it used to be. Cornerstone Macro LLC’s Benson Durham says that bitcoin’s correlation with other assets, and thus its impact on overall portfolio shifts, is a more relevant metric for investors.
By that measure, “there is not much change to note during the recent pullback,” he wrote.
Cryptocurrency experts, meanwhile, say the Musk-driven volatility is only a temporary episode and that it will soon wear off.
“We have a longer-term vision, and investors would do well to do the same,” said Greg King, chief executive of Osprey Funds, which offers cryptocurrency trust funds. “The key question is whether we think this asset is going to last. The answer is yes”.
Original Note: Elon Musk Is Now Blowing Up the Wall Street Case for Bitcoin
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