At a media briefing with Chant West on Tuesday, Damien Hennessy, head of asset allocation at Zenith, said that, given its short history compared to more established asset classes, it’s difficult to pinpoint the market conditions in which cryptocurrencies can actually benefit investors.
“It’s difficult because you’ve only got like 12 years of data, really, that you can analyse to see what its role might be, if there is one,” Hennessy said.
He explained that when it comes to whether cryptocurrencies have served as a hedge against inflation, they currently fall in the “maybe, maybe not” category.
“I’d give it six out of 10 for that. Gold is probably an eight out of 10,” he said, adding: “Has it provided you with diversification in down markets? No, it hasn’t done that.”
Acknowledging the very limited history available to understand their long-term behaviour, Hennessy said, to date, cryptocurrencies have largely acted like a “risk-on” asset.
“That’s what the evidence says today. So if you’re buying it and putting it in a portfolio as a diversifier, I think you’re just misleading yourself. If you’re putting it in the portfolio as a bit of juice for a return in good times, then go for your life,” he said.
“But that wouldn’t be something that we’d put in portfolios, we don’t think it has a role.”
In a market note last May, Zenith investment consultant Calvin Richardson similarly opined that the firm would not be advocating for the use of the largest cryptocurrency in the world, bitcoin, within its clients’ portfolios despite its growth.
“Unlike traditional assets like property, shares or fixed income, bitcoin doesn’t generate any rent or earnings, and unlike commodities, it isn’t used to produce goods,” Richardson said at the time.
“Bitcoin has also consistently demonstrated a high correlation to shares, which in our view, makes it a weak diversifier.
“We therefore struggle to articulate bitcoin’s potential role in a client’s portfolio – other than it being an outlet for speculation. And given clients have entrusted us as responsible stewards of their savings, we’re uncomfortable exposing their portfolios to what is effectively a leveraged bet on equities.”
Zenith’s reluctance to recommend cryptocurrency to its clients is a sentiment shared by much of the wealth industry, including the regulators.
Namely, last month, the chief investment officer of UniSuper, John Pearce, described the recent rally in cryptocurrencies as a “sign of irrational exuberance” and firmly stated that the savings of UniSuper’s 647,000 members will “not be going anywhere near” such investments.
Speaking at the ASIC Annual Forum last year, the regulator’s chair, Joe Longo, dismissed the bitcoin price surge taking place at the time with a blunt “who cares”, calling it a classic case of the “bigger fool theory” and highlighting the cryptocurrency’s significant environmental impact.
Joining Longo on a panel at the time, Reserve Bank governor Michele Bullock described bitcoin’s rise as simply “more buyers than sellers”.
Bullock went further, challenging its very definition: “It’s not a currency, it’s not money, it’s being used as some sort of asset class. I don’t understand it,” she said, adding, “I don’t really see a role for it certainly in the Australian economy or the payments system.”
Others, however, are a little more accepting of digital coins, with AustralianSuper sharing it is exploring blockchain technology for potential growth despite not planning direct cryptocurrency investments.
“AustralianSuper does not have any current plans to invest directly in cryptocurrencies,” the fund’s spokesperson told InvestorDaily last year.
“The fund is looking at blockchain technology as a potential investment opportunity and has made some small investments in companies that use the underlying technology in other ways.”
HESTA, on the other hand, told InvestorDaily in December that while the fund does not currently invest in cryptocurrency, it is actively monitoring the space.
