Investors in Cryptocurrencies Should Be Ready to ‘Stomach Complete Losses’ says BlackRock


BlackRock, the world’s largest asset manager, offered an important advice to investors. They should only consider investing in cryptocurrencies such as bitcoin if they are ready to lose everything.

In its recent report, Richard Turnbill, the global chief investment strategist at BlackRock, noted that the cryptocurrency market capitalization reached $500 billion after significant price increases last year.

According to him, “We see cryptocurrencies potentially becoming more widely used in the future as the markets mature. Yet for now, we believe they should only be considered by those who can stomach potentially complete losses. Similarly, blockchain needs to overcome significant hurdles to reach its promising future.”

Additionally, Turnbill noted that the cryptocurrency market is “fragmented, largely unregulated, and wildly volatile.”  He compared the annualized daily price volatility of bitcoin, ethereum, and ripple with U.S. equities and gold.

During the global financial crisis, Turnbill noted that the volatility of the three cryptocurrencies makes the fluctuations in the U.S. equity market “almost look placid.”

Source: BlackRock

The price of bitcoin surged 2,000% to more than $19,000 in mid-December. However, the cryptocurrency and its cousins suffered a massive sell-off over the past several weeks. It price fell below $7,000 on February 5.

Nouriel Roubini, a well-known economist, called bitcoin the biggest bubble in human history.” He predicted that the price of the digital currency will drop to zero.

Billionaire investor Paul Singer recently called cryptocurrencies as “one of the most brilliant scams in history.” He compared digital currencies to an empty black box.

Cryptocurrencies are tricky investment targets

Furthermore, Turnbill described cryptocurrencies as “tricky investment targets” because of its nature. He cited the fact that digital currencies are facing big challenges including:

  • dramatic price swings
  • weak regulation
  • security flaws at exchanges and other end point

Moreover, he also pointed out that valuation is difficult because cryptocurrencies have no cash flow, earnings or interest rate. Their uses vary from a speculative bet to payment system.

Turnbill believes that a global regulatory framework on cryptocurrencies will be presented during the G-20 summit in March.