Aviva Investors, the asset management arm of the UK-listed insurer, is closely monitoring bitcoin and other digital assets for potential spread risks to other asset classes, as the market is preparing for a so-called “crypto winter”.
One of the concerns is how a prolonged crypto downturn could hit some institutions that have gained exposure to the market, such as banks.
“Traditional banks have become more involved in crypto. If there are desks that start to post negative figures, that’s where it impacts investors like us — it impacts companies for which it’s not necessarily the main activity”, Guillaume Paillat, manager of portfolio within Aviva Investors’ multi-asset team, told Financial news.
The comments come as cryptocurrencies, including bitcoin, tumble – investors spooked by inflation gains and crypto lender Celsius Network’s decision to halt withdrawals. The price of Bitcoin has plunged to around $21,000, down 30% since June 9, with a drop of around 70% from its peak in November.
“We had extensive internal analyzes to try to understand the space, with experts on the sell side who were active in setting up the offices. We are certainly not invested or looking to invest in bitcoin,” Paillat said.
“But it is becoming an important part of the economy. We need to look at it in terms of implications for other asset classes.
The lack of any regulatory framework overseeing the crypto market is one of the reasons the £268 billion asset manager has avoided bitcoin. The cryptocurrency’s volatility and the fact that it generates no income also makes it less attractive to include in portfolios, Paillat said.
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“The volatility we have seen in bitcoin, given the size of the crypto market, could have implications for more asset classes due to a ripple effect. Bitcoin is not behaving like the digital gold that everyone was hoping for,” Paillat said. “As it grows, that’s something we have to watch.”
The latest sharp drop in the world’s most popular digital asset follows a brutal crypto rout in May, sparked by the collapse of stablecoins terraUSD and luna, which wiped out an estimated $60 billion.
The value of the global cryptocurrency market fell from nearly $3 billion in mid-November last year to around $916 billion, according to figures from CoinMarketCap.
The latest selloff has already impacted some big names involved in the crypto industry.
Coinbase, the Nasdaq-listed crypto exchange with around 5,000 employees, announced plans on June 14 to cut nearly 20% of its workforce amid the market meltdown.
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Its chief executive, Brian Armstrong, cited the difficult economic conditions behind the decision and the fact that the company grew “too quickly” during the 2021 crypto bull run.
Coinbase, which counts Ark Invest fund manager Cathie Wood, among its top shareholders, has seen a nearly 80% decline in its share price since the start of 2022.
Meanwhile, Gemini, another crypto exchange, said earlier this month that it would cut 10% of its workforce ahead of the latest market rout.
The company’s billionaire founders, Cameron and Tyler Winklevoss, said the industry has entered a “crypto winter” – an extended period where trading remains stable after a major market drop.
Despite Aviva Investors’ skepticism, there is evidence that institutional investors, including fund managers, want access to crypto.
According to a study of 105 professional investors by Grayscale Investments, the world’s largest digital currency asset manager, respondents predicted that institutions will replace retail investors as the primary holders of digital assets.
Survey respondents included fund managers, wealth managers and pension funds managing over $182 billion in assets under management.
To contact the author of this story with comments or news, email David Ricketts