Commerce Trust views investing in cryptocurrency as highly speculative and does not currently offer direct investment in cryptocurrency. The regulatory environment surrounding cryptocurrency is uncertain and this commentary is only intended to provide educational information about the medium of digital assets.
Consider this: investors who first bought Bitcoin on Nov. 8, 2021, through the FTX exchange and held it for a year would have lost over 72% of their initial investments – and that’s if they managed to cash out.
The FTX collapse and other setbacks experienced over the past 18 months have cast considerable doubt over the unregulated and difficult-to-understand world of cryptocurrency, or crypto, and digital assets. Critics have questioned the industry’s value proposition and real-world applications since its inception, and the FTX fiasco seems to have magnified that skepticism.
Commerce Trust views investing in cryptocurrency as highly speculative. However, from a business viability perspective, cryptocurrency and digital assets may have a future provided companies in the crypto space establish more structured business practices and oversight for the industry is enacted.
In large part, that’s because the underlying blockchain infrastructure that enables the existence of digital assets has gained widespread business acceptance. As a refresher, blockchain technology is a decentralized ledger of transactions records across a peer-to-peer network.
A 2021 Deloitte global survey of more than 1,200 financial executives and practitioners found that 81% consider blockchain “broadly scalable” and already having achieved mainstream adoption. In addition, 78% of respondents said their companies’ leadership teams believe there is a compelling business case to use blockchain or digital assets within their organizations.2
Merchants also are looking at some form of digital currency payment for their locations. In a separate 2021 Deloitte survey of U.S. retail businesses, 85% of respondents said their companies believe digital currency payments will be ubiquitous in their industries in five years. Merchants also overwhelmingly agree (87%) that organizations accepting digital currencies have a competitive advantage in the market. 3
While the outlook for crypto adoption appears rosy, usage today remains far outside the mainstream. According to a 2022 Federal Reserve (Fed) report on the financial health of U.S. families, only 2% of adults said they had used crypto to buy something or make a payment in the previous 12 months, while 11% of respondents held it as an investment over the same period.5
Is oversight a lifeline for crypto?
Many market analysts believe the path forward for cryptocurrency and digital assets must include oversight or a regulatory framework like traditional finance. That appears underway. The Biden administration has tasked several federal regulatory agencies to develop recommendations on ways to protect consumers, investors and businesses against possible malfeasance in the digital asset space. The Fed and U.S. Treasury also have called for meaningful digital asset regulation and oversight.
Unfavorable market conditions, lax industry standards and minimal regulatory oversight all characterized the crypto collapse of 2022. However, if what’s left of the industry re-emerges with more sound business practices and traditional marketplace oversight in place, many of the technological promises crypto has heralded for the past decade could remain within reach.
1Bitcoin USD historical prices, Yahoo! Finance
2Deloitte, 2021 Global Blockchain Survey, April 2021, page 4
3 Deloitte, Merchant Adoption of Digital Currency Payments Survey; December 2021, pages 5,6
4CNBC, “How ethereum’s merge made crypto mining more sustainable,” October 22, 2022
5 U.S. Federal Reserve, Economic Well-Being of U.S. Households in 2021; May 2022, page 45
6 White House Fact Sheet, “White House releases first-ever comprehensive framework for responsible development of digital assets,” September, 16, 2022
The Chartered Financial Analyst® (CFA®) Charter is a designation granted by CFA Institute to individuals who have satisfied certain requirements, including completion of the CFA Program and required years of acceptable work experience. Registered marks are the property of CFA Institute.
Past performance is no guarantee of future results, and the opinions and other information in the commentary are provided as of January 9, 2023. This summary is intended to provide general information only and may be of value to the reader and audience.
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