By George Ward
The crypto winter, which started last year, and the high-profile collapse of digital asset firms do not mean the industry is doomed to crash, says the Paris-based investment firm Amundi. Despite investors feeling the heat of the crypto market fallout, the asset manager believes that the limited supply of Bitcoin is still attractive to investors.
Attractive Amid Inflation
According to the asset manager, the rising inflation between 2021 and 2022 has seen Bitcoin failing as a hedge against inflation. According to investment executives at Amundi, even as inflation has been above the Federal Reserve’s threshold, BTC is still attractive to investors.
Mortier Vincent and Perrier Tristan, two top-level executives at the asset management firm, released a paper last week detailing the state and directions of the crypto market. The executives argued that despite failing to serve as an inflation hedge in the last two years due to the emergence of new policies and market interest rates, Bitcoin remains popular as an asset class.
The authors added that nominal interest rates are likely to drop during high inflation, but such a situation could lead to a bull rally for Bitcoin. According to the experts, this situation will favor an asset with limited supply and attractive long-term potential.
Bringing Realistic Expectations
According to the asset manager’s executives, the recent events in the crypto market may bring realistic expectations from the industry to the fore. The collapse of the FTX exchange is the main reason for evaluating why the crypto space will continue to operate.
They explained that the crypto space is comparable to the blue-chip tech stocks, which have experienced a wild price decline before a renewed price surge. Moreover, they explained that the current crypto market downturn echoes Bitcoin’s historical price cycles that show periodic ups and downs.
Additionally, Vincent and Tristan mentioned last September’s ETH transition from the proof-of-work (PoW) to the proof-of-stake (PoS) consensus algorithm on the Ethereum network as the industry’s attempt to reduce energy consumption.
The experts noted that the central theme behind crypto is decentralization and immutability of transactions, which has not been affected by the industry’s crisis. Another factor is that established firms in traditional finance and businesses have continued indicating their interest in crypto assets, with Blackrock reportedly acquiring a stake in Circle last year.
On regulation, the executives noted that institutional investors would positively impact the crypto sector despite uncertainty causing price setbacks for some time. They argued that some regulators are careful about placing a blanket ban on crypto.
Meanwhile, the investment executives at Amundi stressed that despite their bullish outlook, the fundamental economic utility of crypto needs to be clearly defined.