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Wells Fargo warms up to crypto investment

Photo of: Nathan VDH
by Nathan VDH

Investing in cryptocurrency is similar to the gold rush of the 1850s according to Wells Fargo Bank. The investment is therefore more like speculation, with its risks. Speculation that has paid out, however, as Bitcoin outperforms gold and the S&P 500 index over 3 years, but with its high volatility as a counterpart.

Institutional interest in cryptocurrencies is experiencing a “decisive moment”. However, many investors still choose to stay away from these assets. Others still hesitate to consider them as sustainable investments.

The report of the American bank Wells Fargo could remove some of these obstacles by further legitimizing cryptocurrencies. It thus refutes any fashion phenomenon that is doomed to disappear in the near future.

“Over the past 12 years, they have grown from literally rivals to $560 billion in market capitalization,” Wells Fargo said. The conclusion is obvious: “Trends don’t usually last 12 years”.

A way to open the door of cryptocurrencies to a new population of investors? It’s a scenario, provided that the risks are weighed carefully, despite the promise of gains. The bank’s analysts acknowledge that they “attract a lot of attention, but not necessarily a lot of investment money”.

One of the reasons is the high volatility of these digital assets. Investors should not ignore this. Thus, “investing in cryptocurrencies today is a bit like living at the beginning of the gold rush of the 1850s, which involved more speculation than investment,” the report warns.

Bitcoin is a perfect illustration. Investment in BTC is therefore a “volatile journey”. The advantage is a major capital gain. Over one year, the value of Bitcoin increases by 170%.

Bitcoin outperforms gold and equities over 3 years, but in 2 months.
Enough to capture the attention of new investors? Wells Fargo has one caveat, however. Yes, “Bitcoin has outperformed gold and the S&P 500 Index over the past three years. ยป

But volatility is a major counterpart. “Until just two months ago, three-year total returns were about the same for all three assets, only the volatility differed,” the bank warns.

Bitcoin, Ether and other cryptocurrencies are therefore, according to the bank, aimed at investors with a strong appetite for risk and tempted by the gold rush. Wells Fargo does not, however, try to discourage such investments.

On the contrary, the bank shows a certain interest in these assets. The “cryptocurrencies could one day become investments worthy of the name”. In 2021, Wells Fargo plans to pay more attention to crypto-assets and to provide potential investors with new insights into them.