How to explain the bitcoin rout

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MARKET COMPASS. “Fortune favors the brave”, said Matt Damon.

You’ve probably seen this ad from famous American actor Matt Damon encouraging people to buy bitcoin. It first appeared on the major American networks last October, then resumed during the Super Bowl in front of the more than 100 million viewers attracted each year by this event. The video has also been viewed by nearly 30 million people on social media.

Damon’s intervention hasn’t really helped this cryptocurrency because from the US$69,000 it quoted when the actor’s first announcements aired, bitcoin is struggling to stay above 20,000. $US today.

Zoe Kleinman, a BBC journalist covering mostly the tech sector, wrote recently that few people seem to want to comment on the rout of bitcoin and the cryptocurrency industry in general. We can understand that many do not want to displease all those who have been carried away by words as encouraging as those, among others, of Elon Musk, who admits to having invested a large sum in it.

Bitcoin, like most speculative investments, is having a tough time right now as many investors and speculators fear the effects of recession risk, rising interest rates and inflation on riskier assets, recalls the journalist.

A new asset class… not sure

Part of bitcoin’s popularity is that many people see it as a new asset class that should be part of diversified portfolios. But is this really the case? Many managers do not believe it. But they hesitate to say it out loud so as not to offend the susceptibility of investors who find themselves in a very uncomfortable situation at the moment.

For Katie Martin, Financial Markets Editor, at the Financial Times, bitcoin is not based on any intrinsic value. Its value depends only on people’s willingness to buy or sell it.

Very popular? Yes, but…

The only reason that seems to justify it being considered an asset class is its popularity, explains Vincent Fournier, portfolio manager at Claret Investment Management. “There is no other element that supports the contrary. It doesn’t pay dividends or interest, and doesn’t generate cash flow,” he says.

There are two essential factors that make an investment an asset class, explains Vincent Fournier. First, it must retain its value over time. Some claim bitcoin is an asset class by comparing it to gold. But the comparison is lame, he says. “A few thousand years ago, you could buy clothes with gold. We still can today,” he said.

But also, to constitute an asset class, it would be necessary that the investment in bitcoin is liquid enough, that is to say that it can be traded easily. “This is certainly not the case at present”, concludes Vincent Fournier.

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