Bitcoin has been growing for over a decade now and in 2021 the cryptocurrency appears to be applying pressure on wall street to accept bitcoin as a legitimate asset class. Currently, Bitcoin is classified as a non-correlated asset – which means that over its decade long lifetime it has never found a place in traditional asset classes such as stocks and commodities.
Bitcoin has seen a meteoric rise since late last year and currently is closing in on a price of $50,000. Is there a growing fear that Wall Street may be left behind amongst the growing adoption of cryptocurrencies by investors, corporations, and the fintech industry?
There are doubts from some in the finance industry such as Goldman Sachs, where Bitcoin is not considered an asset class. Goldman Sachs cite the fact that Bitcoin does not generate cash flow like bonds or generate earnings through an exposure to global economic growth. There are also concerns over the volatility of Bitcoin such as seen in the March 12th 2020 drop of 37% in a single day.
Not everyone is in agreement. Where Goldman Sachs argue that bitcoin shows little evidence of hedging against inflation, major hedge fund managers, such as Stanley Druckenmiller, are pushing the narrative of Bitcoin as a hedge against not only inflation, but also the debasement of the U.S dollar.
Recent private forums and meetings would suggest that Wall Street is showing signs of a newfound openness to cryptocurrencies. This month Entrepreneur Elon Musk announced that Tesla had purchased $1.5 billion worth of bitcoin and would be looking to accept bitcoin as a payment option for their products.
Wall Street is being forced to contend with the triumphant rise of Bitcoin as it continues to find adoption from major corporations, fintech companies, and institutional investors. JPMorgan COO, Daniel Pinto, believes wider adoption is imminent. Pinto cites the addition of Bitcoin futures as an eligible investment by the largest asset manager in the world, BlackRock.
Banks have been the most reluctant to dip a toe into the cryptocurrency waters, but have focused on technologies such as blockchain. It is understandable, considering the sheer financial regulatory scrutiny placed upon one of the most crucial economic institutions in the world. However, if a major bank, such as one of the big six U.S banks chose to adopt bitcoin, the idea of asset class legitimacy would be firmly supported.