Crypto Becomes Valid Portfolio Options and Assets Diversifier , Says Wells Fargo's Subsidiary
Nicholas Otieno Aug 08, 2022 03:00
Wells Fargo's subsidiary believes that cryptocurrencies are a transformative innovation. The giant bank said cryptos play a role in diversification and can provide potential risk-adjusted returns.
Wells Fargo Investment Institute, a registered investment adviser and wholly owned subsidiary of Wells Fargo, recently released its fifth publication in its digital asset and cryptocurrency educational series in August, as seen on Sunday, August 7.
The investment advisory firm published the report to ensure that new investors see the comprehensive picture of the digital assets industry and therefore take advantage of investing in the new asset class.
As per the new report, Wells Fargo considers digital assets as a transformative innovation, just like the internet, cars, and electricity.
The investment adviser described cryptocurrencies as the building blocks of a new large digital network that moves money and assets. That network is open for anyone in the world to use. Wells Fargo said infrastructure is emerging to support this new Internet of Value.
Since traditional finance is starting to embrace open networks, adopting digital assets is expected to accelerate over the coming years.
According to Wells Fargo, early adopters are set to gain profitability (economies of scale), while those late comers could lose something that the internet has taught the world for 40 years.
The adviser stated that while there is an investment thesis behind digital assets, the industry is still young to become mature, and therefore, many investment risks remain.
The main risks facing the industry are additional regulation, technology and business failures, limited consumer protections, price volatility, as well as operational risks associated with handling and storing digital assets, the bank elaborated.
Wells Fargo said cryptocurrencies have evolved into a viable investment asset. Long-term supply and demand trends further support industry growth and compress price volatility. Crypto has therefore emerged to play a role as portfolio diversifier. The bank classifies cryptocurrency or digital asset investment as an alternative investment.
Crypto Increasingly Gaining Mainstream Adoption
In 2020, several crucial events attracted increased mainstream usage in transactions and accelerated the maturation of crypto markets. For example, banks received regulatory permission to custody cryptocurrencies. Regulators took additional steps to extend a legal and oversight framework that have helped solidify crypto as investable assets.
In 2020 and 2021, more operating companies such as MicroStrategy, the Block Inc., (formerly Square), Tesla, among others, began allocating cash to digital assets and cryptocurrencies.
This year, crypto continues to gain ground as an investment despite the market crash. According to a recent Morning Consult data intelligence and market research firm survey, about 24% of American consumers own crypto.
Research shows that clients are increasingly asking investment advisors about crypto – with 94% of financial advisors receiving questions about the asset class from clients in 2021.
Cryptocurrency should be part of clients’ portfolios as long as they can afford to lose that money and they are going to keep it for a seriously long period of time, according to Suze Orman, a US personal finance expert.
Many experts advise clients that cryptocurrencies should be about 5% of their portfolio and not more.
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