Is it that dangerous to buy crypto assets? The current bear market in cryptocurrency markets is sure to reignite the argument.
It’s a subject that concerns not only people and investment firms but also national governments who are attempting to determine how much coverage to provide retail investors.
The easier it is for small-time investors to invest in cryptocurrencies such as Bitcoin, the more Americans can have access to assets that have generated some individuals a lot of money. However, this also exposes them to the risks of a brand-new, extremely volatile investment.
Furthermore, the concept of live Bitcoin index funds has dominated policy discussions this year.
Several significant financial institutions have appealed to the Securities and Exchange Commission (SEC) for approval to launch such ETFs, which would invest money in Bitcoin and be exchanged like publicly traded securities.
However, the SEC has dismissed those offers regarding the lack of market oversight and the propensity for fraudulent activities and manipulation.
Last month, Fidelity Investments, noted as amongst the largest global investment firms, said that members in its 401(k) plans would soon be able to invest a portion of their pension savings in Bitcoin.
Sens. Elizabeth Warren and others wrote to Fidelity on Wednesday, questioning the choice and citing Department of Labor guidelines that cautioned of the dangers of such a step. They also questioned whether Fidelity’s other operations — it has participated in cryptocurrency mining and provides blockchain-based investments to fund managers — lead to a conflict of interest.
The question is how far crypto would be accepted into the norm of investment at this time.
Retirement funds are large pools of investment cash that have the potential to enhance cryptocurrency markets, but they are also among the most standard financial products available, being both highly accessible and carefully controlled for consumer rights.
They aren’t supposed to be easy to crash.
Are People Investing in Crypto Being Scammed?
When you come right down to it, the question being asked seems to be whether individuals who buy into Bitcoin may get tricked, to put it kindly.
Now appears to be a good moment to weigh in on a raging internal dispute about Bitcoin’s true value.
Fidelity’s digital assets business, for example, has been a vocal supporter of the notion that Bitcoin, particularly, is enormously valuable. Nassim Nicholas Taleb, an uncompromising risk analyst, is one of the most renowned proponents of this viewpoint.
A report published in January by Fidelity argues that Bitcoin is better than other crypto assets.
This section claims that Bitcoin’s lifetime in comparison to different digital currencies makes it more likely to stand the test of time or “Lindy” and that the numerous disruptions the network has faced (market crashes, transfer hacks, and so on) have bolstered and made the network more resilient, exemplifying its strength.
What the report fails to mention is that both the “Lindy Effect” and anti-fragility are personal pet notions of Taleb, who rose to international prominence after his 2007 book “The Black Swan” advised of a need to make preparations for disastrous, unpredicted risks as the global economic crisis unfolded.
Bitcoin supporters act as if it’s an obvious good investment (of course, this is the new big thing), while critics act as if it’s an obvious red flag (of course, a virtual, unsupported currency is merely a scheme).
The Fidelity-Taleb dispute reveals why knowing the solution is so difficult.
In the study he shared on Arxiv.org, an independent archive for scholarly writings, Taleb is the uncommon renowned figure who expressed initial excitement for Bitcoin before realizing it was nonsense.
Fidelity Investments, situated in Boston, is where doctors and attorneys put their retirement funds. It has little to do with the cockiness of renegade hedge fund managers, much less the disruptive online spirit of cryptocurrencies. However, in 2018, when it established its Digital Assets department, the company moved ahead of the pack in crypto.
The Lindy portion of Fidelity’s research chastises Taleb for relying on his own preferred terms to support its case for bitcoin’s worth.
The Bottom Line
The volatility surrounding Bitcoin has caused many individuals and investment managers alike to become slightly wary of the asset. Choosing to invest one’s life savings into such a risky EFT can be worrisome, and this worry is starting to affect the decisions made by many titans of the financial industry.