Morgan Stanley says bitcoin could become a “normal” trading purchase
Bitcoin "could be evolving quickly into a primary barometer."
The biggest story in the cryptocurrency industry so far this year has been the significant price fluctuations we've seen. From highs around the US$20,000 mark, we've seen bitcoin dip to around US$7,000 before recovering to $10,000. All of this happened over just a month or so.
But with institutional traders moving funds into cryptocurrency markets, Morgan Stanley warns that bitcoin's popularity will align the coin's market shifts more closely with the broader markets, reducing its appeal as a non-correlated asset.
Morgan Stanley, in a note sent to its clients this week, said:
The idea is that as institutional investors seek out increasingly higher levels of risk/return, that Bitcoin may represent the most risky/potentially highest return available, and hence could be evolving quickly into a primary barometer/leading indicator for broader financial markets and risk appetite.
One of the major factors affecting bitcoin, and other cryptocurrency, values is the cost of power used to generate the coins. As we noted recently, vast amounts of energy are being used to mine coins. The levels are so high that Newsweek predicted cryptocurrency was on track to consume as much energy as every country on Earth by 2020.
Morgan Stanley's analysis suggests cryptocurrency mining already uses as much energy as some large countries.
Another challenge is that many people are taking on debt in order to enter cryptocurrency markets. And while Australian banks aren't blocking cryptocurrency purchases on credit cards, US banks have taken a different tack. Bloomberg reports that about one in five cryptocurrency owners leveraged debt to make their purchases. Morgan Stanley says the US ban on the use of credit cards being used for cryptocurrency purchases is indicative of them being used by a large number of traders, exposing them to losses should prices fall.
With many institutional traders entering the cryptocurrency market, the squeeze on energy prices and limits on how debt can be used to purchase cryptocurrency, Morgan Stanley concludes that bitcoin could become more like a traditional financial instrument, with its pricing more closely correlated with established markets.