Amundi -- Europe's largest asset manager that oversees more than $1.5 trillion worth of client assets -- has warned that new cryptocurrency regulations could initially prove "brutal" for the price of bitcoin and other cryptocurrencies.
In a report shared with The Block on Wednesday, Amundi's deputy CIO Vincent Mortier and head of global views Didier Borowski said that G7 regulators are "determined" to regulate cryptocurrencies. Such regulation will likely "initially lead to an adjustment of their price, possibly brutal."
Mortier further told The Block that when "some regulations will start to being contemplated," bitcoin could quickly go back to "$30,000 or $20,000 — what is a fair value is very difficult to say." Bitcoin is currently trading at around $53,760.
Bitcoin and cryptocurrency buyers do not seem to be discounting any regulatory risk, according to Mortier and Borowski.
The duo further argued that cryptocurrencies are not money because they do not possess the three qualities that have characterized money: a unit of account, a store of value, and a medium of exchange. Cryptocurrencies are also volatile, not always liquid, and aren't a legal tender, the two said. So, it would ultimately be more accurate to call them crypto-assets, according to their reasoning.
Still, cryptocurrencies do not have the usual characteristics of assets, they said. Unlike other assets such as stocks and bonds, cryptocurrencies have "no real economic underlying asset. As a result, there is no valuation model."
Cryptocurrencies could compete with gold, but they are yet to prove themselves against the yellow metal, said Mortier and Borowski.
Cryptocurrencies "soared during the Covid-19 economic crisis but haven't been through an episode of financial stress," they said. So, "giving them the same status as gold, ex ante, when estimating their upside potential is questionable."
As for stablecoins, they are the most direct competitors for official government-backed currencies, according to the researchers. But they could pose risks to the financial system, "particularly if one of them suddenly ceases to be able to maintain its fixed value."
Overall, crypto regulation is an "exogenous risk factor" for buyers, said Mortier and Borowski. But once the regulatory environment is clarified and the main risks are addressed, cryptocurrencies are "likely to flourish again," they said.
"Only once the regulatory environment has stabilized, and the relationship with CB [central bank] digital currencies has been clarified, will asset managers be able to recommend digital assets as safe investment vehicles. At the end of the day, investments in CCs [cryptocurrencies] may be promising, but they are still speculative in nature," they concluded.
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