One of the world’s largest fund managers has called cryptocurrency “portfolio kryptonite”, adding that digital assets are a “poor choice for long-term investors”.
In a paper released in Asia on Thursday, PGIM, Prudential’s $1.4 trillion global investment management business unit, said cryptocurrency is an unreliable portfolio diversifier and an inadequate safe-haven asset or inflation hedge.
“Direct investment in cryptocurrencies offers little benefit to an institutional investor — while adding considerable volatility and risk,” Shehriyar Antia, PGIM’s head of thematic research, said.
Recent risk-adjusted returns are not much different than other asset classes but with more frequent and greater drawdowns, researchers concluded.
They said bitcoin, the most common cryptocurrency, was not a steadying force in early 2020 when global asset prices spiralled downward due to worldwide pandemic-induced shutdowns and held far less of its value than conventional safe-haven assets.
Gold Can Be An Inflation Edge
In 2021, the price of bitcoin and other cryptocurrencies moved with inflation only for a brief time before falling sharply, they noted. “Gold, on the other hand, has demonstrated since the 1970s that it can be an effective and reliable inflation hedge.”
“Furthermore, the unsettled regulatory backdrop and the significant environmental, social and governance concerns pose significant additional headwinds for long-term investors,” they wrote in “Cryptocurrency Investing: Powerful Diversifier or Portfolio Kryptonite?”
PGIM researchers said they supported distributed ledger technology and smart contracts, saying they could revolutionise elements of financial services, logistics, and supply chain management.
“Cryptocurrency gets all the breathless hype, but it’s the underlying technology where we find the most interesting investment opportunities,” says Taimur Hyat, PGIM chief operating officer.
“They eliminate the need for counterparty and trade verification as well as transaction and record reconciliation,” he said.
- George Russell