Banks, Asset Managers, Corporates Climb Back on the Bitcoin Bandwagon

The idea that bitcoin is a store of value that will, like gold, ride the wave of inflation has been tested lately, especially after it crashed along with the stock market following news that inflation has hit a 40-year high. The Fed made it clear we can expect three or even four rate hikes this year.

But as bitcoin has started to climb again, breaking $40,000 last week, there are signs that the narrative that said bitcoin was a store of value has been revived.

See also: Bitcoin’s Highly Touted Decoupling vs. Fed’s Rate Hike Reality

On Jan. 21, a Bloomberg News piece declared that the argument that bitcoin is a digital gold is “falling apart,” pointing out that during a volatile month that sent equity prices plunging, bitcoin correlated pretty closely with stocks — also known as risk assets — while gold rose 0.3%.

It quoted well-known gold-booster and steadfast crypto critic Peter Schiff saying, “No one is buying gold to get rich. People buy gold to stay rich. Gold represents a conservative, long-term store of value and inflation hedge: Bitcoin is none of those things.”

Of course, that was two weeks after Bloomberg reported that Goldman Sachs predicted bitcoin could hit $100,000 as it steals “store of value” market share from gold.

Money Talks

Notably, Monday (Feb. 7), audit and consulting giant KPMG’s Canadian arm announced that it had invested some of its corporate treasury in cryptocurrency, joining a list that includes payment firm Block, automaker Tesla and software maker-turned-bitcoin investor MicroStrategy. But the list of public companies announcing bitcoin investments, which ballooned in late 2020, hasn’t added any notable members recently.

Then Wells Fargo on Monday released a report arguing that it wasn’t too late to invest in digital assets, saying crypto’s uptake is “growing globally and rapidly.”

It added that “cryptocurrencies appear to be near a hyper-adoption phase, similar to that of the internet during the mid-to-late 1990s.”

Which is about a bullish a statement as you’ll find.

Of course, it’s advice cited the complex and still-maturing nature of the crypto industry and regulatory uncertainty to “suggest the consideration of only professionally managed private placements.”

And now, BlackRock, the world’s largest asset manager, is poised to announce that it will offer cryptocurrency trading services, CoinDesk reported Wednesday (Feb. 9).

Along with trading services for its institutional investors, BlackRock will also offer lending services similar to decentralized finance or DeFi, platforms that allow clients to borrow against their crypto holdings. While much of that lending cycles back into DeFi investments, it seems likely that centralized BlackRock’s lending will have a broader reach.

Late last month, Bloomberg reported that BlackRock was planning an exchange-traded fund (ETF) tracking companies involved with crypto.

With more than $10 trillion in assets under management for institutional investors, including giant sovereign wealth funds and pension plans, BlackRock’s entrance could substantially boost the breadth of potential investors in bitcoin and other cryptocurrencies.

Technology Play

Like Wells Fargo, KPMG said that it’s bullish because of its “outlook on emerging technologies underpinned by blockchain.”

KPMG Canada advisory partner Kareem Sadek, the firm’s co-lead on cryptoassets and blockchain services, said the “industry continues to grow and mature and it needs to be considered by financial services and institutional investors.”

Of course, the release managed to wind back around to KPMG’s robust blockchain technology practice several times, noting that the governance committee that approved the treasury allocation “included stakeholders from Finance, Risk Management, Advisory, Audit and Tax, and it undertook and completed a rigorous risk assessment process that included a review of regulatory, reputational, and custodial risks,” as well as “the tax and accounting implications of the transaction.”

The word most worth looking at in that statement of expertise is “reputational.”

While it was only touched on indirectly, KPMG’s release pointed to the biggest drag on bitcoin’s ability to attract investors: its horrible environmental record.

Read more: Bitcoin’s New Headwind: ESG Investors Double Down on Its ‘Staggering’ Pollution

In noting that it purchased “carbon offsets to maintain a net-zero carbon transaction to deliver on the firm’s stated environmental, social and governance (ESG) commitments,” KPMG was making a tacit advisory statement that offsets are good enough to clear similar investments.

Which may or may not be true. Last month, investment advisor MSCI’s ESG practice warned that institutional investors “may have more exposure to cryptocurrency risk than they realize,” citing “a ‘creeping’ exposure to cryptocurrency, as new companies built around the asset class are added to indexes and older, established companies invest in cryptocurrency.”

Which describes a problem too big for carbon offsets.